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Cooperative and Non-Cooperative Equilibrium Consumption Taxes in the Presence of Cross-Border Pollution

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  • Michael S. Michael
  • Panos Hatzipanayotou

Abstract

We consider a two small open economies model with cross-border pollution that is generated from consumption. Within this framework we examine i) the non-cooperative equilibrium consumption taxes and compare them to when pollution is only local, ii) the cooperative equilibrium consumption taxes and we compare them to the non-cooperative tax rates, and iii) cases where cooperative taxes are different between countries. In this framework, tax harmonization may not be the optimal policy if, for example, pollution per unit of consumption differ between countries. Many results of the paper depend on the relationship in consumption (i.e., complementarity or substitutability) between pollution and the polluting good.

Suggested Citation

  • Michael S. Michael & Panos Hatzipanayotou, 2013. "Cooperative and Non-Cooperative Equilibrium Consumption Taxes in the Presence of Cross-Border Pollution," CESifo Working Paper Series 4501, CESifo.
    • Handle: RePEc:ces:ceswps:_4501
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    References listed on IDEAS

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    More about this item

    Keywords

    consumption taxes; cross-border pollution; non-cooperative and cooperative equilibrium;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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