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The effect of differentiated emission taxes: does an emission tax favor industry?

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  • Shiro Takeda

    (Department of Economics, Kanto Gakuen University)

Abstract

Extending a standard 2x2 Heckscher-Ohlin model to incorporate emissions, this paper investigates the effect of differentiated emission taxes on output and emissions in a small open economy. The following results are derived. First, raising the emission tax imposed on one industry may increase the output of that industry. This result is quite surprising in the sense that such a paradoxical result can occur in a simple and standard model under fairly plausible values of parameters. By numerical examples and using a graphical method, it is also shown that the mechanism behind the result is the factor market adjustment effects which work through two different channels. Second, while strengthening emission taxes uniformly across industries always reduces the volume of emissions, strengthening emission tax unevenly may increase it.

Suggested Citation

  • Shiro Takeda, 2005. "The effect of differentiated emission taxes: does an emission tax favor industry?," Economics Bulletin, AccessEcon, vol. 17(3), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-04q20009
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    References listed on IDEAS

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    Cited by:

    1. Yasuhiro Takarada & Masafumi Tsubuku & Madoka Okimoto, 2017. "Trade and the emissions trading system in a small open economy," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(2), pages 391-403, April.
    2. Yoshiaki Nakada, 2017. "The effects of energy and commodity prices on commodity output in a three-factor, two-good general equilibrium trade model," Papers 1711.10096, arXiv.org, revised Nov 2018.

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    More about this item

    Keywords

    differentiated taxes;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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