Trade Liberalization and Environmental Taxation in Federal Systems

Per Fredriksson and Xenia Matschke

Scandinavian Journal of Economics, 2016, vol. 118, issue 1, 150-167

Abstract: The literature on trade liberalization and environment has not yet considered federal structures. In this paper, we show how the design of environmental policy in a federal system has implications for the effects of trade reform. Trade liberalization leads to a decline in pollution taxes, regardless of whether pollution taxes are set at the federal (centralized) or local (decentralized) level, and it increases social welfare. The effect under a decentralized system is smaller than if these taxes are set by the federal government, and pollution emissions therefore decline in this case. Moreover, majority bias interacts with trade liberalization if federal taxes are used.

Date: 2016
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Working Paper: Trade Liberalization and Environmental Taxation in Federal Systems (2014)
Working Paper: Trade Liberalization and Environmental Taxation in Federal Systems (2014)
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