Competitive dominance of emission trading over Pigouvian taxation in a globalized economy

Seung-Gyu Sim and Hsuan-Chih Lin

Economics Letters, 2018, vol. 163, issue C, 158-161

Abstract: This paper examines the welfare implication of adopting a Pigouvian taxation scheme or emission trading scheme. In a globalized economy with international trade and cross-border pollution, we show that adopting the latter is the strict dominant strategy of each country, and global welfare is maximized when all countries adopt the latter, because emission trading incentivizes the other country to tighten its environmental regulation without concern for excessive shrinkage of domestic production and aggravation of cross-border pollution.

Keywords: Emission trading scheme; Pigouvian taxation; International trade; Cross-border pollution (search for similar items in EconPapers)
JEL-codes: H23 L51 Q56 Q58 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Competitive Dominance of Emission Trading Over Pigouvian Taxation in a Globalized Economy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:163:y:2018:i:c:p:158-161

DOI: 10.1016/j.econlet.2017.12.015

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