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TRIMs, environmental taxes, and foreign investment

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  • Chi-Chur Chao
  • Eden S.H. Yu

Abstract

Various second-best policy mixes of investment measures and environmental taxes for a polluted, small open economy with foreign capital and immovable trade restrictions are examined. The optimal policy mix depends on the types of trade restrictions. When tariffs are in place, strict policies of pollution taxes and export requirements are optimal for alleviating tariff-induced consumption and production distortions. When involuntary quotas are used in lieu of tariffs, however, the optimal policy mix is a zero export requirement and Pigouvian taxes on pollution. For the case of VERs, however, the optimal policy demands export requirements and a less stringent pollution tax.

Suggested Citation

  • Chi-Chur Chao & Eden S.H. Yu, 2000. "TRIMs, environmental taxes, and foreign investment," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 799-817, August.
    • Handle: RePEc:cje:issued:v:33:y:2000:i:3:p:799-817
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    Cited by:

    1. Beladi, Hamid & Liu, Lu & Oladi, Reza, 2013. "On pollution permits and abatement," Economics Letters, Elsevier, vol. 119(3), pages 302-305.
    2. Chao, Chi-Chur & Yu, Eden S.H., 2007. "Trade liberalization, foreign ownership, and the environment in a small open economy," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 471-477.
    3. Beladi, Hamid & Oladi, Reza, 2011. "Does trade liberalization increase global pollution?," Resource and Energy Economics, Elsevier, vol. 33(1), pages 172-178, January.
    4. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2002. "Optimal Tax Policies with Private-Public Clean-Up, Cross-Border Pollution and Capital Mobility," CESifo Working Paper Series 822, CESifo.

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