Asymmetric Tax Policy Responses in Large Economies With Cross-Border Pollution |
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Authors: | Nikos Tsakiris Michael S Michael Panos Hatzipanayotou |
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Institution: | 1. Department of Economics, University of Ioannina, P.O. Box 1186, 451?10?, Ioannina, Greece 2. Department of Economics, University of Cyprus, P.O. Box 20537, CY-1678?, Nicosia, Cyprus 4. CESifo (Center for Economic Studies and the Ifo Institute of Economic Research), Munich, Germany 3. Department of International and European Economic Studies, Athens University of Economics and Business, 76, Patission str, 104?34?, Athens, Greece
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Abstract: | We build a model of cross-border pollution between two large open economies, one importing the polluting good and the other exporting it, and derive their non-cooperative trade and environmental tax policies. We show among other things, that (1) in response to a bilateral reduction in trade taxes by both countries, the former country’s optimal policy is to lower its Nash emissions tax while the latter’s is to raise it, and (2) in response to an increase in emissions tax rates by both countries, the former country’s optimal reaction is to raise its Nash import tariff, while the latter’s is to reduce its Nash export tax. That is, in the present context, freer trade leads the exporting country to adopt stricter while the importing country laxer environmental tax policies. |
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