Implementing Environmental Taxes on Intermediate Goods in Open Economies

James Poterba and Julio Rotemberg

No 294853, Institute for Policy Reform Working Paper Series from Institute for Policy Reform

Abstract: Many proposed and actual environmental taxes are taxes on intermediate goods. These goods, such as fossil fuels, are typically tradable, and they are also used in the production of many tradable final goods. How should imports of intermediate and final goods be taxed if the government does not want environmental tax policy to alter the competitive positions of domestic and foreign producers? Not surprisingly, imports of the intermediate good itself can be taxed at the same rate as domestic intermediate goods. Imports of final goods that are produced using these intermediate goods can be taxed based on their intermediate good intensity, provided there is no joint production. Under conditions of joint production, however, such as those that characterize the petroleum refining and petrochemical industries, it is difficult to define the intermediate good intensity of any single product. Arbitrary assignments of intermediate good content, for example on the basis of output weight or value, are unlikely to preserve the competitive positions of domestic and foreign producers.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 34
Date: 1994-06
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Working Paper: Implementing Environmental Taxes on Intermediate Goods in Open Economies (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iprwps:294853

DOI: 10.22004/ag.econ.294853

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