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Discriminatory Environmental Taxes and the Porter Hypothesis

In: Sustainable Development in Economic Growth Theory

Author

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  • Yoshihiro Hamaguchi

    (Hannan University)

Abstract

In R&D-based heterogeneous firms, pollution emissions and a discriminatory environmental tax are introduced. The environmental tax affects firms’ entry and exit. Trade environment policies affect total pollution emissions through scale, composition and reallocation effects. Increasing taxes on local firms has a non-monotonic effect on average productivity and pollution emissions due to firms exiting the local market and entering the export market. Increasing taxes on export firms has a non-monotonic effect due to firms entering the local market and exiting the export market. In a border tax adjustment (BTA) effect, where the tax rate for local firms is higher than for export firms, welfare improves due to a tax increase for local firms and deteriorates due to a tax increase for export firms. Due to the cleaning effect of trade liberalisation, the average productivity improves. However, due to the positive composition effect, trade liberalisation increases pollution. In the pollution haven effect, due to the negative reallocation effect, trade liberalisation reduces pollution. Therefore, trade liberalisation has a non-monotonic welfare effect. Regarding a uniform environmental tax, trade liberalisation has no effect on pollution emissions and a positive welfare effect. Based on these results, the relationship with the Porter hypothesis is explained.

Suggested Citation

  • Yoshihiro Hamaguchi, 2025. "Discriminatory Environmental Taxes and the Porter Hypothesis," Springer Books, in: Sustainable Development in Economic Growth Theory, chapter 0, pages 211-230, Springer.
    • Handle: RePEc:spr:sprchp:978-981-96-7639-2_15
    DOI: 10.1007/978-981-96-7639-2_15
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