Is Environmental Tax Harmonization Desirable in Global Value Chains?

Cheng, Haitao and Kato, Hayato and Obashi, Ayako (2020): Is Environmental Tax Harmonization Desirable in Global Value Chains?

Abstract

The spatial unbundling of parts production and assembly currently characterizes globalization, leading to the worldwide dispersion of pollution. We consider socially optimal (cooperative) environmental taxes in a two-country model of global value chains in which the location of both parts and assembly can differ. When unbundling costs are so high that parts and assembly must colocate in the pre-globalized world, pollution is spatially concentrated, and harmonizing environmental taxes maximizes global welfare. In contrast, with low unbundling costs triggering the dispersion of parts and thus pollution throughout the world as today, harmonization fails to maximize global welfare. Similar results hold when the two countries non-cooperatively choose their environmental taxes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Environmental policy; Fragmentation; Emission tax competition; International coordination; Trade in parts and component
• Subjects: F - International Economics > F1 - Trade > F18 - Trade and Environment; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development ; Environment and Trade ; Sustainability ; Environmental Accounts and Accounting ; Environmental Equity ; Population Growth; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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