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Environmental taxation and international trade in a tax-distorted economy
Llop Llop, Maria
Universitat Rovira i Virgili. Departament d'Economia; Universitat Rovira i Virgili. Centre de Recerca en Economia Industrial i Economia Pública
International environmental agreements have met with the reluctance of some countries to accept general commitments aimed at reducing greenhouse gas emissions. While acknowledging the crucial significance of the climate change process, politicians and regulators in some export-oriented countries have argued that pollution measures would have a negative impact on their domestic welfare. Despite the literature having thoroughly analysed those impacts from various points of view, using different methodological approaches, the second-best general equilibrium analysis has not to date been used to analyse the relationship between environmental taxation and trade. This paper fills this gap by presenting a general equilibrium model to examine the welfare effects of taxing a polluting exported good through an explicit representation of the trade relations of the economy in the presence of pre-existing taxes. The results extend the scope of the literature on second-best taxation by demonstrating that trade affects all the traditional welfare components proposed in the previous studies. In addition, trade neutrality on welfare not only depends on partial equilibrium effects but also general equilibrium impacts, involving the ability to replace the distortionary income tax with the new tax and the influence of environmental improvements on the labour-leisure choice. Keywords: environmental taxation; trade-substitution effect; welfare trade neutrality. JEL classification: F18, H21, H23.
339 - Comerç. Relacions econòmiques internacionals. Economia mundial. Màrqueting
Comerç internacional -- Aspectes ambientals
Medi ambient -- Impostos
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30 p.
Working Paper
Universitat Rovira i Virgili. Departament d'Economia
Documents de treball del Departament d'Economia;2016-19

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