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Title: Trade Structure, Transboundary Pollution and Multilateral Trade Liberalization: the Effects on Environmental Taxes and Welfare
Authors: Nkuiya, Bruno
Keywords: Trade Liberalization
Pollution taxes
Transboundary pollution
Heterogeneous countries
Imperfect markets
JEL Codes: D43
Issue Date: 2012-10
Series/Report no.: CREATE Working Papers
Abstract: This paper considers a trade situation where the production activities of potentially heterogeneous countries generate pollution which can cross borders and harm the well-being of all the countries involved. In each of those countries the policy market levies pollution taxes on the polluting firms and a tariff on imports in order to correct that distortion. The purpose of the paper is to investigate the effect of a reduction in the tariff on equilibrium pollution taxes and welfare. The existing literature has investigated this problem for trade between two identical countries. This paper analyzes the problem in the more realistic context where countries are not necessarily identical and trade can be multilateral. It becomes possible to show what bias is introduced when those two realities are neglected. I find that a tariff reduction can actually lower output; it can also lower welfare even if pollution is purely local.
Institution/Association: University of Laval>Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE)>Working Papers
Collections:Working Papers

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