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Trade and the equivalence between environmental tax and quota

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  • Li, Gang

Abstract

In a two-sector general equilibrium model with pollution (arising from production) affecting the productivity, I examine in both autarky and trade equilibria the equivalence between tax and quota, that is, whether they can replace each other to achieve the same environmental goals. I show that (i) sometimes tax cannot achieve what quota can; (ii) the equivalence/non-equivalence between tax and quota may change due to trade liberalization; (iii) the choice of numeraire matters under tax regulation.

Suggested Citation

  • Li, Gang, 2020. "Trade and the equivalence between environmental tax and quota," MPRA Paper 103463, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103463
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    File URL: https://mpra.ub.uni-muenchen.de/103463/1/MPRA_paper_103463.pdf
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    References listed on IDEAS

    as
    1. Hoel, Michael & Karp, Larry, 2001. "Taxes and quotas for a stock pollutant with multiplicative uncertainty," Journal of Public Economics, Elsevier, vol. 82(1), pages 91-114, October.
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    4. Ronald W. Jones, 2018. "The Structure of Simple General Equilibrium Models," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 4, pages 61-84, World Scientific Publishing Co. Pte. Ltd..
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    6. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
    7. Sweeney, James L., 1993. "Economic theory of depletable resources: An introduction," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 17, pages 759-854, Elsevier.
    8. Mayeres, Inge & Proost, Stef, 2001. "Marginal tax reform, externalities and income distribution," Journal of Public Economics, Elsevier, vol. 79(2), pages 343-363, February.
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    More about this item

    Keywords

    Pollution tax; emission quota; production externalities; numeraire;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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