Environmental Policy and Product Specialization

Thomas Aronsson (), Lars Persson () and Tomas Sjögren ()
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Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Lars Persson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 653, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper characterizes income and commodity taxation as the outcome of a noncooperative Nash game in a two-country economy where one of the countries produces an environmentally clean good, while the other produces a dirty good. Among the results, it is shown that the commodity tax on the dirty good implemented by each country does not contain any term that directly serves to correct for the external effect. Instead, the country producing the dirty good internalizes part of the domestic external effect by choosing a relatively high marginal income tax rate.

Keywords: Trade and Environment; Optimal Taxation; Externalities. (search for similar items in EconPapers)
JEL-codes: F18 H21 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-pbe
Date: Written 2005-03-15
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:umnees:0653

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