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Regional versus Multilateral Trade Liberalization, Environmental Taxation and Welfare

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  • Soham Baksi

Abstract

We consider strategic trade among identical countries and compare the impacts of multilateral versus regional tariff reduction on equilibrium pollution tax and social welfare. While both forms of trade liberalization increase production and consumption in the tariff-reducing countries, regional trade liberalization also reduces production in a non-participating country and may decrease its consumption. When pollution is local, regional and multilateral trade liberalization have similar impacts in the tariff-reducing countries. In contrast, when pollution is perfectly transboundary, regional (multilateral) trade liberalization (i) weakens (may strengthen) environmental protection in the tariff-reducing countries, and (ii) in the neighbourhood of free trade, may increase (decreases) welfare of the tariff-reducing countries.

Suggested Citation

  • Soham Baksi, 2011. "Regional versus Multilateral Trade Liberalization, Environmental Taxation and Welfare," Departmental Working Papers 2011-03, The University of Winnipeg, Department of Economics.
    • Handle: RePEc:win:winwop:2011-03
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    File URL: http://economics.uwinnipeg.ca/RePEc/winwop/2011-03.pdf
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    References listed on IDEAS

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    1. Krutilla, Kerry, 1991. "Environmental regulation in an open economy," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 127-142, March.
    2. Josh Ederington & Jenny Minier, 2003. "Is environmental policy a secondary trade barrier? An empirical analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 137-154, February.
    3. Managi, Shunsuke & Hibiki, Akira & Tsurumi, Tetsuya, 2009. "Does trade openness improve environmental quality?," Journal of Environmental Economics and Management, Elsevier, vol. 58(3), pages 346-363, November.
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    5. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
    6. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
    7. Soham Baksi & Amrita Ray chaudhuri, 2009. "On trade liberalization and transboundary pollution," Economics Bulletin, AccessEcon, vol. 29(4), pages 2605-2612.
    8. McAusland, Carol, 2008. "Trade, politics, and the environment: Tailpipe vs. smokestack," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 52-71, January.
    9. Benarroch, Michael & Thille, Henry, 2001. "Transboundary pollution and the gains from trade," Journal of International Economics, Elsevier, vol. 55(1), pages 139-159, October.
    10. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 2001. "Is Free Trade Good for the Environment?," American Economic Review, American Economic Association, vol. 91(4), pages 877-908, September.
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    Cited by:

    1. Gnutzmann, Hinnerk; Gnutzmann-Mkrtchyan, Arevik, 2016. "The Silent Success of Customs Unions," Economics Working Papers ECO2016/02, European University Institute.
    2. Hinnerk Gnutzmann & Arevik Gnutzmann-Mkrtchyan, 2016. "The Silent Success of Customs Unions," CESifo Working Paper Series 5944, CESifo Group Munich.

    More about this item

    JEL classification:

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

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