Taxation of a Polluting Non-renewable Resource in the Heterogeneous World |
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Authors: | Julien Daubanes André Grimaud |
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Institution: | 1.CER-ETH at ETHZ,Swiss Federal Institute of Technology Zürich,Zürich,Switzerland;2.IDEI and LERNA at TSE,Toulouse School of Economics, and ESCT, Toulouse Business School,Toulouse,France |
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Abstract: | This paper extends the literature on the taxation of polluting exhaustible resources by taking international heterogeneities
and national tax-setting into account. We propose a two-country Romer model of endogenous growth in which the South is endowed
with the stock of an essential polluting non-renewable resource and world economic growth is driven by a northern research
sector. We consider the stock of pollution as affecting global welfare. First, we characterize the optimal environmental taxation
policies. Second, we examine the impacts of national taxes. Their time profile determines the extraction path, the dynamics
of pollution accumulation and that of world output. Their respective levels entail inter-country interactions by altering
the efficiency of the world resource allocation, the tax revenues and the resource rents. We study isolatedly the distortional
and distributional effects of local taxes. Then, we completely assess the overall impact of a unilateral tax increase. Finally,
we find that, even if heterogeneous countries coordinate their taxation policies to correct the global environmental problem,
their divergent strategic interests cause another global, non-environmental distortion in the allocation of the resource. |
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