Green subsidies as strategic trade policy tools

Domenico Buccella, Luciano Fanti and Luca Gori ()

No 1240, GLO Discussion Paper Series from Global Labor Organization (GLO)

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.

Keywords: Abatement subsidy; Exports; International duopoly (search for similar items in EconPapers)
JEL-codes: F13 H23 L13 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth, nep-int and nep-res
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Journal Article: Green subsidies as strategic trade policy tools (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:1240

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