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Environmental regulations for a small open economy with tourism

Author

Listed:
  • Jean-Pierre Laffargue

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Chi-Chur Chao

    (CUHK - The Chinese University of Hong Kong [Hong Kong])

  • Bharat R. Hazari
  • Eden S. H. Yu

    (CUHK - City University of Hong Kong [Hong Kong])

Abstract

This chapter shows that in the presence of tourism, the traditional policy prescription, free trade in goods and the standard Pigouvian tax on pollution, is not optimal for a small open economy. Foreign tourists consume mainly local non-traded goods in the tourist-receiving economy. Inbound tourism converts formally non-traded goods into tradables, generating a tourism terms-of-trade effect. Owing to this favourable effect ,positive tariffs and stricter pollution taxes can actually improve welfare of domestic residents. The optimal rates of tariffs and pollution taxes are derived and explained for the economy with tourism. These positive rates are confirmed by simulations.

Suggested Citation

  • Jean-Pierre Laffargue & Chi-Chur Chao & Bharat R. Hazari & Eden S. H. Yu, 2008. "Environmental regulations for a small open economy with tourism," PSE-Ecole d'économie de Paris (Postprint) halshs-00645327, HAL.
    • Handle: RePEc:hal:pseptp:halshs-00645327
    as

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