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Trade and Commodity Taxes as Environmental Instruments in an Open Economy

Author

Listed:
  • Onur A. Koska

    () (Department of Economics, Middle East Technical University, Ankara, Turkey)

  • Frank Stähler

    () (Department of Economics, University of Tübingen, Tübingen, Germany; Department of Economics, University of Adelaide, Adelaide, Australia; Center for Economic Studies, The Ifo Institute (CESifo), Munich, Germany)

  • Onur Yeni

    () (Department of Economics, Hacettepe University, Ankara, Turkey)

Abstract

In a simple reciprocal dumping model of trade, this study scrutinizes the strategic role of trade and commodity taxes as environmental instruments when consumption of an imported product generates pollution. The results suggest that both trade and commodity taxes have important implications on countries’ integration through trade. For sufficiently small values of the marginal disutility from pollution, the country claiming responsibility for pollution prefers commodity taxes over import tariffs, and compared to the case of trade policies, free trade can be maintained for larger values of the marginal disutility from pollution when commodity taxes are used strategically as environmental instruments.

Suggested Citation

  • Onur A. Koska & Frank Stähler & Onur Yeni, 2017. "Trade and Commodity Taxes as Environmental Instruments in an Open Economy," ERC Working Papers 1704, ERC - Economic Research Center, Middle East Technical University, revised May 2017.
  • Handle: RePEc:met:wpaper:1704
    as

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    File URL: http://www.erc.metu.edu.tr/menu/series17/1704.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Koska, Onur A. & Stähler, Frank, 2016. "The myth of profit-shifting trade policies," Economics Letters, Elsevier, vol. 140(C), pages 39-41.
    3. Walz, Uwe & Wellisch, Dietmar, 1997. "Is free trade in the interest of exporting countries when there is ecological dumping?," Journal of Public Economics, Elsevier, vol. 66(2), pages 275-291, November.
    4. Georges Tanguay, 2001. "Strategic Environmental Policies under International Duopolistic Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(5), pages 793-811, November.
    5. Scott McCracken & Frank Stähler, 2010. "Economic integration and the choice of commodity tax base with endogenous market structures," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 91-113, April.
    6. Brian R. Copeland & M. Scott Taylor, 1995. "Trade and the Environment: A Partial Synthesis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(3), pages 765-771.
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    11. Scott McCracken, 2015. "The choice of commodity tax base in the presence of horizontal foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 811-833, October.
    12. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    13. John Barrett & Glen Peters & Thomas Wiedmann & Kate Scott & Manfred Lenzen & Katy Roelich & Corinne Le Quéré, 2013. "Consumption-based GHG emission accounting: a UK case study," Climate Policy, Taylor & Francis Journals, vol. 13(4), pages 451-470, July.
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    More about this item

    Keywords

    International trade; Consumption-generated pollution; Trade policy; Commodity taxes;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment

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