Munich Personal RePEc Archive

Trade and the equivalence between environmental tax and quota

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

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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.

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