Trade, Consumption Pollution and Tax

Haitao Cheng

No HIAS-E-106, Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University

Abstract: Consumption is an important source of greenhouse gas (GHG) emissions. This study theoretically analyzes how trade liberalization and consumption tax affect firm locations across countries and GHG emissions originating from consumption. Introducing consumption-originated emissions in a standard footloose capital model, we find several novel results that extend previous analyses of production-originated GHG emissions. First, trade liberalization has a non-monotonic effect on global emissions; that is, as trade costs decline, global emissions initially decrease and then increase. Second, consumption taxes cause carbon leakage; that is, the tax on one country reduces emissions in that country, while increasing it in the rest of the world. Third, optimal consumption taxes that maximize global welfare must be neutral about firm location decisions. In particular, even if firms are asymmetrically distributed across countries in the absence of a consumption tax, the optimal tax level must be identical across countries.

Keywords: Asymmetric market sizes; Consumption pollution; Consumption tax harmonization; Footloose capital model; Trade liberalization (search for similar items in EconPapers)
JEL-codes: F18 Q54 Q58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2021-04
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-pbe
Note: This version: April 2021, First version: October 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/71647/070_hiasDP-E-106.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hit:hiasdp:hias-e-106

Access Statistics for this paper

More papers in Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Digital Resources Section, Hitotsubashi University Library ().