Cross-country Emission Tax Effect of Mergers

Mahelet Fikru () and Luis Gautier

Arthaniti: Journal of Economic Theory and Practice, 2023, vol. 22, issue 1, 113-128

Abstract: Recent studies show that mergers among polluting firms could affect the regulatory landscape of the industry and trigger a policy change. Using a two-country model, this study examines the effect of a merger size, as measured by the number of merging firms, on the optimal emission tax of another country. We show that, if pollution damages are not too large, a decline in the size of a merger reduces production and profits in that country, which affords a larger tax in the other country due to smaller profit-shifting concerns. On the other hand, if pollution damages are extremely large, a reduction in the size of a merger in one country reduces production in that country, but it also reduces production and emissions in the other country. Thus, the latter can induce a smaller emission tax. The change in the emission tax in both scenarios is consistent with cooperative outcomes.

Keywords: Merger and acquisition; trans-boundary pollution; product differentiation; cooperative emission tax; non-cooperative emission tax (search for similar items in EconPapers)
Date: 2023
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Chapter: Cross-Country Emission Tax Effect of Mergers (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:artjou:v:22:y:2023:i:1:p:113-128

DOI: 10.1177/0976747920958094

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