IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v123y2024ics0095069623001237.html
   My bibliography  Save this article

Policy linkages, country size, and international capital distribution

Author

Listed:
  • Lai, Yu-Bong

Abstract

We investigate the linkage between environmental taxes and import tariffs between two countries, which differ in their capital endowments and the number of consumers. We consider the consumption-generated pollution in an intra-industry trade model with monopolistically competitive industries, and focus on the regime with the environmental taxes only and that with environmental taxes and tariffs. We find that imposing tariffs lowers the environmental taxes, leading to greater global pollution. Another finding is that when tariffs are infeasible, the capital-abundant country charges a relatively low environmental tax rate; when tariffs are available, it adopts a relatively high tax rate. In addition, we investigate the effects of the international distribution of capital and consumers on the global pollution. We also extend the model to investigate the policy-making when the distribution of capital is endogenously determined.

Suggested Citation

  • Lai, Yu-Bong, 2024. "Policy linkages, country size, and international capital distribution," Journal of Environmental Economics and Management, Elsevier, vol. 123(C).
    • Handle: RePEc:eee:jeeman:v:123:y:2024:i:c:s0095069623001237
    DOI: 10.1016/j.jeem.2023.102905
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095069623001237
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jeem.2023.102905?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Udo Kreickemeier & Philipp M. Richter, 2014. "Trade and the Environment: The Role of Firm Heterogeneity," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 209-225, May.
    2. McAusland, Carol, 2005. "Harmonizing tailpipe policy in symmetric countries: Improve the environment, improve welfare?," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 229-251, September.
    3. Joseph S Shapiro, 2021. "The Environmental Bias of Trade Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 831-886.
    4. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
    5. Larch, Mario & Wanner, Joschka, 2017. "Carbon tariffs: An analysis of the trade, welfare, and emission effects," Journal of International Economics, Elsevier, vol. 109(C), pages 195-213.
    6. Christoph Böhringer & Jared C. Carbone & Thomas F. Rutherford, 2018. "Embodied Carbon Tariffs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 183-210, January.
    7. Keen, Michael & Kotsogiannis, Christos, 2014. "Coordinating climate and trade policies: Pareto efficiency and the role of border tax adjustments," Journal of International Economics, Elsevier, vol. 94(1), pages 119-128.
    8. Lucas W. Davis & Matthew E. Kahn, 2010. "International Trade in Used Vehicles: The Environmental Consequences of NAFTA," American Economic Journal: Economic Policy, American Economic Association, vol. 2(4), pages 58-82, November.
    9. Lai, Yu-Bong & Hu, Chia-Hsien, 2008. "Trade agreements, domestic environmental regulation, and transboundary pollution," Resource and Energy Economics, Elsevier, vol. 30(2), pages 209-228, May.
    10. David A. Weisbach & Samuel Kortum & Michael Wang & Yujia Yao, 2023. "Trade, Leakage, and the Design of a Carbon Tax," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 4(1), pages 43-90.
    11. Georges Tanguay, 2001. "Strategic Environmental Policies under International Duopolistic Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(5), pages 793-811, November.
    12. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-François Thisse, 2021. "Agglomeration And Trade Revisited," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 3, pages 59-85, World Scientific Publishing Co. Pte. Ltd..
    13. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    14. Edward J. Balistreri & Daniel T. Kaffine & Hidemichi Yonezawa, 2019. "Optimal Environmental Border Adjustments Under the General Agreement on Tariffs and Trade," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(3), pages 1037-1075, November.
    15. Nikos Tsakiris & Panos Hatzipanayotou & Michael S. Michael, 2019. "Border tax adjustments and tariff‐tax reforms with consumption pollution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(6), pages 1107-1125, December.
    16. Hikaru Ogawa & David E. Wildasin, 2009. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," American Economic Review, American Economic Association, vol. 99(4), pages 1206-1217, September.
    17. Alexander Haupt, 2000. "Environmental Product Standards, International Trade and Monopolistic Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 585-608, August.
    18. Behrens, Kristian & Hamilton, Jonathan H. & Ottaviano, Gianmarco I.P. & Thisse, Jacques-François, 2009. "Commodity tax competition and industry location under the destination and the origin principle," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 422-433, July.
    19. Samuel Kortum & David Weisbach, 2017. "The Design of Border Adjustments for Carbon Prices," National Tax Journal, National Tax Association;National Tax Journal, vol. 70(2), pages 421-446, June.
    20. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    21. Rikard Forslid & Toshihiro Okubo & Mark Sanctuary, 2017. "Trade Liberalization, Transboundary Pollution, and Market Size," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(3), pages 927-957.
    22. Nicole Gürtzgen & Michael Rauscher, 2000. "Environmental Policy, Intra-Industry Trade and Transfrontier Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(1), pages 59-71, September.
    23. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2022. "Tax competition in the presence of environmental spillovers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(3), pages 600-626, June.
    24. Wellisch Dietmar, 1995. "Locational Choices of Firms and Decentralized Environmental Policy with Various Instruments," Journal of Urban Economics, Elsevier, vol. 37(3), pages 290-310, May.
    25. Benarroch, Michael & Weder, Rolf, 2006. "Intra-industry trade in intermediate products, pollution and internationally increasing returns," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 675-689, November.
    26. Chi-Chur Chao & Jean-Pierre Laffargue & Pasquale M. Sgro, 2012. "Tariff and environmental policies with product standards," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 978-995, August.
    27. Liddle, Brantley, 2018. "Consumption-based accounting and the trade-carbon emissions nexus," Energy Economics, Elsevier, vol. 69(C), pages 71-78.
    28. Chi-Chur Chao & Eden S. H. Yu, 2015. "Environmental Impacts of Tariff and Tax Reforms Under Origin and Destination Principles," Pacific Economic Review, Wiley Blackwell, vol. 20(2), pages 310-322, May.
    29. Bin Hu & Ross McKitrick, 2016. "Decomposing the Environmental Effects of Trade Liberalization: The Case of Consumption-Generated Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(2), pages 205-223, June.
    30. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
    31. Alexander Haupt, 2006. "Environmental Policy in Open Economies and Monopolistic Competition," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(2), pages 143-167, February.
    32. Lai, Yu-Bong, 2019. "Environmental policy competition and heterogeneous capital endowments," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 107-119.
    33. Christoph Böhringer & Carolyn Fischer & Knut Einar Rosendahl & Thomas Fox Rutherford, 2022. "Author Correction: Potential impacts and challenges of border carbon adjustments," Nature Climate Change, Nature, vol. 12(4), pages 408-408, April.
    34. Christoph Bohringer & Jared Carbone & Thomas F. Rutherford, "undated". "Embodied Carbon Tariffs," Working Papers 2013-24, Department of Economics, University of Calgary, revised 11 Oct 2013.
    35. Brian R. Copeland & M. Scott Taylor, 1995. "Trade and the Environment: A Partial Synthesis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(3), pages 765-771.
    36. Christoph Böhringer & Carolyn Fischer & Knut Einar Rosendahl & Thomas Fox Rutherford, 2022. "Potential impacts and challenges of border carbon adjustments," Nature Climate Change, Nature, vol. 12(1), pages 22-29, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Haitao Cheng, 2023. "Consumption pollution and taxes with endogenous firm locations and different market sizes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(6), pages 1601-1632, December.
    2. Lai, Yu-Bong, 2019. "Environmental policy competition and heterogeneous capital endowments," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 107-119.
    3. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2019. "On the Principles of Commodity Taxation under Interregional Externalities," University of Cyprus Working Papers in Economics 03-2019, University of Cyprus Department of Economics.
    4. Michael S. Michael & Panos Hatzipanayotou & Nikos Tsakiris, 2023. "Can Small Economies Act Strategically? The Case of Consumption Pollution and Non-tradable Goods," DEOS Working Papers 2312, Athens University of Economics and Business.
    5. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2016. "On the Efficiency of Destination and Origin Commodity Taxation in the Presence of Consumption Generated Cross-Border Pollution," CESifo Working Paper Series 6221, CESifo.
    6. Roy, Jayjit, 2017. "On the environmental consequences of intra-industry trade," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 50-67.
    7. Bellora, Cecilia & Fontagné, Lionel, 2023. "EU in search of a Carbon Border Adjustment Mechanism," Energy Economics, Elsevier, vol. 123(C).
    8. Duan, Yuwan & Ji, Ting & Lu, Yi & Wang, Siying, 2021. "Environmental regulations and international trade: A quantitative economic analysis of world pollution emissions," Journal of Public Economics, Elsevier, vol. 203(C).
    9. Shi, Xinzheng & Zhang, Ming-ang, 2023. "Waste import and air pollution: Evidence from China's waste import ban," Journal of Environmental Economics and Management, Elsevier, vol. 120(C).
    10. Aliénor Cameron & Marc Baudry, 2023. "The case for carbon leakage and border adjustments: where do economists stand?," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 25(3), pages 435-469, July.
    11. Stefano Carattini & Giseong Kim & Givi Melkadze & Aude Pommeret, 2023. "Carbon Taxes and Tariffs, Financial Frictions, and International Spillovers," CESifo Working Paper Series 10851, CESifo.
    12. Ambec, Stefan & Esposito, Federico & Pacelli, Antonia, 2024. "The economics of carbon leakage mitigation policies," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    13. Levy, Ting & Dinopoulos, Elias, 2016. "Global environmental standards with heterogeneous polluters," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 482-498.
    14. Hartmut Egger & Udo Kreickemeier & Philipp M. Richter, 2021. "Environmental Policy and Firm Selection in the Open Economy," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(4), pages 655-690.
    15. Behrens, Kristian & Hamilton, Jonathan H. & Ottaviano, Gianmarco I.P. & Thisse, Jacques-François, 2009. "Commodity tax competition and industry location under the destination and the origin principle," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 422-433, July.
    16. Udo Kreickemeier & Philipp M. Richter, 2014. "Trade and the Environment: The Role of Firm Heterogeneity," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 209-225, May.
    17. Klotz, Richard & Sharma, Rishi R., 2023. "Trade barriers and CO2," Journal of International Economics, Elsevier, vol. 141(C).
    18. Perdana, Sigit & Vielle, Marc, 2022. "Making the EU Carbon Border Adjustment Mechanism acceptable and climate friendly for least developed countries," Energy Policy, Elsevier, vol. 170(C).
    19. McAusland, Carol, 2008. "Trade, politics, and the environment: Tailpipe vs. smokestack," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 52-71, January.
    20. Gabriel Felbermayr & Sonja Peterson & Joschka Wanner, 2022. "The Impact of Trade and Trade Policy on the Environment and the Climate. A Review," WIFO Working Papers 649, WIFO.

    More about this item

    Keywords

    Consumption-generated pollution; Environmental regulation; Country size; Monopolistic competition; Policy linkage; Tariffs;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:123:y:2024:i:c:s0095069623001237. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.