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Biofuel subsidies and international trade

Author

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  • Bandyopadhyay, Subhayu
  • Bhaumik, Sumon
  • Wall, Howard J.

Abstract

This paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn-based ethanol, which diverts corn from use as food. In the small-country case, when the tax on crude is not available as a policy option, a second-best biofuel subsidy may or may not be positive. In the large-country case, the twin objectives of pollution reduction and terms-of-trade improvement justify a combination of crude tax and biofuel subsidy for the food exporter. Finally, we show that when both nations engage in biofuel policies, the terms-of-trade effects encourage the Nash equilibrium subsidy to be positive (negative) for the food exporting (importing) nation.

Suggested Citation

  • Bandyopadhyay, Subhayu & Bhaumik, Sumon & Wall, Howard J., 2010. "Biofuel subsidies and international trade," MPRA Paper 41491, University Library of Munich, Germany, revised 21 Sep 2012.
    • Handle: RePEc:pra:mprapa:41491
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Does it make sense to subsidize biofuels?
      by Economic Logician in Economic Logic on 2011-06-07 19:52:00

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    2. Wei, Wenjie, 2014. "Welfare and Environmental Effects of Subsidies and Tariffs in North-South Trade in Renewable Energy Equipment," 2014 Conference (58th), February 4-7, 2014, Port Macquarie, Australia 165887, Australian Agricultural and Resource Economics Society.
    3. Jussila Hammes , Johanna, 2014. "A biofuel mandate and a low carbon fuel standard with ‘double counting’," Working papers in Transport Economics 2014:19, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    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, 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.

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    More about this item

    Keywords

    Biofuel Subsidy; Pigouvian Tax; Pollution Externality;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • F1 - International Economics - - Trade

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