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Green subsidies as strategic trade policy tools

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  • Buccella, Domenico
  • Fanti, Luciano
  • Gori, Luca

Abstract

In a three-country model in which export countries adopt environmental policies, this note analyses how abatement ("green") subsidy can become a potential strategic trade policy tool. When governments set the optimal policy tool considering their local environmental damages, a rich set of equilibria arise. In contrast to the standard result, it is shown that subsidising pollution abatement can 1) emerge as a Pareto-efficient equilibrium of the game; and 2) be the only feasible environmental policy when environmental awareness is low, irrespective of the technological efficiency. Therefore, "green" subsidies can lead to a win-win situation.

Suggested Citation

  • Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2023. "Green subsidies as strategic trade policy tools," GLO Discussion Paper Series 1240, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:1240
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    References listed on IDEAS

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    1. Fanti, Luciano & Buccella, Domenico, 2017. "Green Trade Union and Welfare," Strategic Behavior and the Environment, now publishers, vol. 6(4), pages 339-357, November.
    2. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, December.
    3. Luciano Fanti & Domenico Buccella, 2023. "Vertical industry and strategic trade policy," SN Business & Economics, Springer, vol. 3(2), pages 1-16, February.
    4. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2021. "To abate, or not to abate? A strategic approach on green production in Cournot and Bertrand duopolies," Energy Economics, Elsevier, vol. 96(C).
    5. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455, Elsevier.
    6. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
    7. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    8. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
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    10. Lee, Sang-Ho & Park, Chul-Hi, 2021. "Environmental regulations in private and mixed duopolies: Taxes on emissions versus green R&D subsidies," Economic Systems, Elsevier, vol. 45(1).
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    More about this item

    Keywords

    Abatement subsidy; Exports; International duopoly;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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