Pollution, Capital Mobility and Tax Policies with Unemployment

Nikos Tsakiris (), Panos Hatzipanayotou and Michael Michael

Review of Development Economics, 2008, vol. 12, issue 2, 223-236

Abstract: In this paper we highlight aspects related to the links among unemployment, international capital mobility, and tax policies in a small open developing economy. Without international capital mobility, the joint optimal trade and environmental policies require a zero tariff and an emission tax lower than the Pigouvian tax. With international capital mobility and a capital tax (subsidy), the optimal emission tax rate is smaller (larger) compared to the rate when capital is untaxed. When both the emission tax and the capital tax/subsidy are jointly chosen optimally, then the optimal policy on capital is a lower subsidy, or even a tax, compared to the standard capital subsidy of the no pollution case.

Date: 2008
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