Trade and the equivalence between environmental tax and quota

Li, Gang (2020): Trade and the equivalence between environmental tax and quota.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Pollution tax; emission quota; production externalities; numeraire
• Subjects: F - International Economics > F1 - Trade > F18 - Trade and Environment; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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