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Environmental Taxation and Import Demand for Environmental Goods: Theory and Evidence from the European Union

Author

Listed:
  • Carl Gaigné

    (SMART-LERECO - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - INSTITUT AGRO Agrocampus Ouest - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement)

  • Lota Tamini

    (ULaval - Université Laval [Québec])

Abstract

In this paper, we study the impact of environmental taxation on trade in environmental goods (EGs). Using a trade model in which demand for and supply of EGs are endogenous, we show that the relationship between environmental taxation and demand for EGs follows a bell-shaped curve. Above a cutoff tax rate, a higher tax rate can reduce bilateral trade in EGs because there are too many low-productivity EG suppliers. Based on trade data from 1995 to 2012 across the EU-27 countries, our empirical results are in accordance withthe predictions of our model when we use the Asia-Pacific Economic Cooperation (APEC) list of EGs. We find that environmental taxation (measured as the ratio of environmental tax revenoe to GDP) has a monotonically positive impact on the number of trading partners. Furthermore, we show that if countries were to apply an environmental tax rate equal to 3.96% (e.g., the tax rate maximizing international trade in EGs), then trade in EGs across the EU-27 members would experience an increase of 25.33 percentage points. The results are mixed when we analyse the EGs on the OECD list. While the results for the the number of trading partners are confirmed when we use this list, there is no effect of environmental taxation on import demand.

Suggested Citation

  • Carl Gaigné & Lota Tamini, 2021. "Environmental Taxation and Import Demand for Environmental Goods: Theory and Evidence from the European Union," Post-Print hal-03280104, HAL.
    • Handle: RePEc:hal:journl:hal-03280104
    DOI: 10.1007/s10640-020-00534-w
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    Cited by:

    1. Xiyan Mao & Peiyu Wang, 2023. "Import–export nexus and China's emerging trade in environmental goods," Growth and Change, Wiley Blackwell, vol. 54(1), pages 157-181, March.
    2. Peiyu Wang & Xiyan Mao & Xianjin Huang, 2024. "How does global trade in environmental goods contribute to the SDGs in developing countries?," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(1), pages 496-519, February.
    3. Traore, Ousmane Z. & Tamini, Lota D. & Latouche, Karine, 2025. "Estimating the effects of import rejections related to stricter non-tariff measures (NTMs) in European RASFF countries on African Exports of Edible Vegetables and Fruits," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 361032, Agricultural and Applied Economics Association.
    4. Gökhan Güven, 2024. "The effects of resource export and import taxes on resource conservation and welfare outcomes: triple win or loss reconsidered," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-53, August.
    5. Gökhan Güven & Selim İnançlı, 2023. "Open‐access renewable resources and pollution: Trade and policy implications in a two‐country model," Review of Development Economics, Wiley Blackwell, vol. 27(4), pages 2583-2617, November.

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