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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. TRIMs, impôts environnementaux et investissement étranger. Ce mémoire examine certains ensembles de politiques de second‐ordre portant sur l'investissement et les impôts environnementaux dans une petite économie ouverte polluée où il y a capital étranger et restrictions au commerce international. Quand on a des droits de douane en place, des politiques de fiscalité environnementale et d'exportations requises sont optimales pour corriger les distorsions aux patterns de production et de consommation engendrées par les droits de douane. Cependant quand des contingentements involontaires sont en place plutôt que des droits de douane, le mélange optimal de politiques est de ne pas requérir d'exportation mais d'imposer des taxes à la Pigou sur la pollution. Pour ce qui est des restrictions volontaires à l'exportation, le mélange optimal de politiques réclame une taxe moins forte sur la pollution accompagnée par un certain niveau d'exportation requis.

Suggested Citation

  • Chi‐Chur Chao & Eden S.H. Yu, 2000. "TRIMs, environmental taxes, and foreign investment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(3), pages 799-817, August.
    • Handle: RePEc:wly:canjec:v:33:y:2000:i:3:p:799-817
    DOI: 10.1111/0008-4085.00042
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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. Xiangyu Chang & Yinghui Huang & Mei Li & Xin Bo & Subodha Kumar, 2021. "Efficient Detection of Environmental Violators: A Big Data Approach," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1246-1270, May.
    3. Hamid Beladi & Lu Liu & Reza Oladi, 2011. "A Holistic View of Trade, Pollution Permits and Abatement," Working Papers 0002, College of Business, University of Texas at San Antonio.
    4. 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.
    5. Beladi, Hamid & Oladi, Reza, 2011. "Does trade liberalization increase global pollution?," Resource and Energy Economics, Elsevier, vol. 33(1), pages 172-178, January.

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