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Optimal emission tax with endogenous location choice of duopolistic firms

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  • Masako, Ikefuji
  • Jun-ichi, Itaya
  • Makoto, Okamura

Abstract

This paper explores an optimal environmental tax policy when polluting firms strategically choose the location of their plants in a three-stage game. We examine how the relationship between the optimal environmental tax and the plant location choices of duopolistic firms affects the welfare of the home country. We show that even if the duopolistic firms are identical ex ante, an asymmetric equilibrium may emerge in which either of the two firms relocates its plant in the foreign country. We also show that despite the persistence of globalization, the firms move back their relocated plants to the home country, thus causing the resulting welfare to decline.

Suggested Citation

  • Masako, Ikefuji & Jun-ichi, Itaya & Makoto, Okamura, 2013. "Optimal emission tax with endogenous location choice of duopolistic firms," Discussion paper series. A 257, Graduate School of Economics and Business Administration, Hokkaido University.
  • Handle: RePEc:hok:dpaper:257
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    File URL: http://hdl.handle.net/2115/52724
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    File URL: https://eprints.lib.hokudai.ac.jp/dspace/bitstream/2115/52724/1/Discussion%20Paper%2cSeriesA%2cNo.2013-257.pdf
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    Cited by:

    1. Laura Birg & Jan S. Voßwinkel, 2021. "Emission taxes, firm relocation, and product differentiation," European Journal of Law and Economics, Springer, vol. 51(2), pages 297-345, April.
    2. Francesca Sanna-Randaccio & Roberta Sestini & Ornella Tarola, 2017. "Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(2), pages 379-401, June.
    3. Thierry Madiès & Ornella Tarola & Emmanuelle Taugourdeau, 2022. "Tax haven, pollution haven or both?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1527-1560, December.
    4. Cheng Haitao & Kato Hayato & Obashi Ayako, 2021. "Is Environmental Tax Harmonization Desirable in Global Value Chains?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 21(1), pages 379-416, January.
    5. Giulia Ceccantoni & Ornella Tarola & Cecilia Vergari, 2022. "Tax and pollution in a vertically differentiated duopoly: when consumers matter," Working Papers 3/22, Sapienza University of Rome, DISS.
    6. Julie Ing & Jean-Philippe Nicolai, 2019. "Dirty versus Clean Firms’ Relocation under International Trade and Imperfect Competition," CER-ETH Economics working paper series 19/319, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    7. Daniel Nachtigall, 2019. "Dynamic Climate Policy Under Firm Relocation: The Implications of Phasing Out Free Allowances," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 473-503, September.
    8. Abdul Baki, Ghina & Marrouch, Walid, 2022. "Environmental taxation in the Bertrand differentiated duopoly: New insights," Resource and Energy Economics, Elsevier, vol. 70(C).
    9. Birg, Laura & Voßwinkel, Jan, 2020. "Green Consumers, Emission Taxes, and Firm Relocation," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224639, Verein für Socialpolitik / German Economic Association.
    10. G. Ceccantoni & O. Tarola & C. Vergari, 2017. "Relative tax in a vertically differentiated market: the key role of consumers in environment," Working Papers wp2005, Dipartimento Scienze Economiche, Universita' di Bologna.
    11. Yan, Yan & Li, Yi, 2023. "Technology spillovers, strategic environmental policy, and foreign direct investment," Energy Economics, Elsevier, vol. 127(PA).
    12. Noha Elboghdadly & Michael Finus, 2020. "Strategic Climate Policies with Endogenous Plant Location: The Role of Border Carbon Adjustments," Graz Economics Papers 2020-07, University of Graz, Department of Economics.
    13. Voßwinkel, Jan & Birg, Laura, 2018. "Emission Taxes, Firm Relocation, and Quality Differences," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168298, Verein für Socialpolitik / German Economic Association, revised 2018.
    14. Jihad C. Elnaboulsi & Wassim Daher & Yiğit Sağlam, 2023. "Environmental taxation, information precision, and information sharing," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(2), pages 301-341, April.
    15. Daniel Nachtigall, 2016. "Climate policy under firm relocation: The implications of phasing out free allowances," Working Papers 2016007, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    16. Estay, Manuel & Stranlund, John K., 2022. "Entry, location, and optimal environmental policies," Resource and Energy Economics, Elsevier, vol. 70(C).
    17. Giulia Ceccantoni & Ornella Tarola & Cecilia Vergari, 2023. "Tax and pollution in a vertically differentiated duopoly: When consumers matter," Metroeconomica, Wiley Blackwell, vol. 74(2), pages 416-445, May.
    18. Noha Elboghdadly & Michael Finus, 2022. "Strategic climate policy with endogenous plant location: The role of border carbon adjustments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1266-1309, December.
    19. Nachtigall, Daniel, 2016. "Climate policy under firm relocation: The implications of phasing out free allowances," Discussion Papers 2016/25, Free University Berlin, School of Business & Economics.

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    More about this item

    Keywords

    Environmental policy; Globalization; Relocation; Welfare;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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