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Is Environmental Tax Harmonization Desirable in Global Value Chains?

Haitao Cheng, Hayato Kato and Ayako Obashi ()

The B.E. Journal of Economic Analysis & Policy, 2021, vol. 21, issue 1, 379-416

Abstract: The spatial unbundling of parts production and assembly currently characterizes globalization, leading to the worldwide dispersion of pollution. We consider socially optimal (cooperative) environmental taxes in a two-country model of global value chains in which the location of both parts and assembly can differ. When unbundling costs are so high that parts and assembly must colocate in the pre-globalized world, pollution is spatially concentrated, and harmonizing environmental taxes maximizes global welfare. In contrast, with low unbundling costs triggering the dispersion of parts and thus pollution throughout the world as today, harmonization fails to maximize global welfare. Similar results hold when the two countries non-cooperatively choose their environmental taxes.

Keywords: environmental policy; fragmentation; emission tax competition; international coordination; trade in parts and components (search for similar items in EconPapers)
JEL-codes: F18 F23 Q56 Q58 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Is Environmental Tax Harmonization Desirable in Global Value Chains? (2020) Downloads
Working Paper: Is Environmental Tax Harmonization Desirable in Global Value Chains? (2020) Downloads
Working Paper: Is Environmental Tax Harmonization Desirable in Global Value Chains? (2020) Downloads
Working Paper: Is Environmental Tax Harmonization Desirable in Global Value Chains? (2019)
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DOI: 10.1515/bejeap-2019-0346

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