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Taxation and Technology Adoption: A Hotelling Approach

Author

Listed:
  • Ziesemer, Thomas

    (University of Maastricht, Faculty of Economics)

  • Kriechel, Ben

    (University of Maastricht, Research Centre for Education and the Labour Market (ROA))

Abstract

Environmental regulation and competitiveness are issues that seem to be at odds. However, the `Porter Hypothesis' states that firms can actually gain in competitiveness if they are subject to stricter environmental regulation. We show in a simple model the basic setting of the problem to apply it then to a Hotelling framework. A non-adoption tax (adoption subsidy) is shown to destroy a non-adoption equilibrium in a closed economy model. We show that taxes not directly targeting the non-adoption problem may fail to have an adoption incentive on the firms. In an open economy model the Porter Hypothesis is shown to hold if (i) non-adoption taxes are higher than adoption costs for one country and lower for the other, and (ii) the returns of second adoption are insufficient to cover the net adoption costs.

Suggested Citation

  • Ziesemer, Thomas & Kriechel, Ben, 2006. "Taxation and Technology Adoption: A Hotelling Approach," MERIT Working Papers 2006-009, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2006009
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    References listed on IDEAS

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    More about this item

    Keywords

    environmental regulations; industrial competitiveness; taxation;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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