THE NON-NEUTRALITY OF WTO BORDER TAX ADJUSTMENTS FOR ENVIRONMENTAL EXCISE TAXES UNDER IMPERFECT COMPETITION

Border tax adjustments for environmental taxes should leave imports of final goods unchanged. If intermediate and final goods markets are imperfectly competitive though, non-neutrality can result. Under Cournot behavior, an import tax equal to the environmental tax is too high, and under Bertrand, an import subsidy is the appropriate policy.