Revenue‐Neutral Environmental Tariff Reform, Growth, and Welfare

Takumi Naito

Review of International Economics, 2005, vol. 13, issue 5, 985-996

Abstract: This paper analyzes the growth and welfare effects of revenue‐neutral tariff reform in a small open endogenous growth model with environmental externalities. As is the case in countries that depend primarily on imported energy, the employment of a foreign intermediate good causes negative environmental externalities in production. This paper shows that substituting a tariff on the foreign intermediate good for a tariff on the foreign consumption good in a revenue‐neutral way raises the growth rate and the welfare, if the environmental externality is sufficiently strong and if the elasticity of substitution between inputs lies within a certain range.

Date: 2005
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