The Welfare Effects of Reversed Border Tax Adjustments as a Remedy under Unilateral Environmental Taxation

Reyno Seymore (), Margaret Mabugu and J. H. van Heerden

Energy & Environment, 2012, vol. 23, issue 8, 1209-1220

Abstract: Border Tax Adjustments (BTAs) resurfaced recently in national policy debates as a possible measure to counter the anti-competitiveness effect of unilateral environmental taxes. There seems to be no consensus in the literature on the effectiveness of BTAs under environmental taxes. This paper aims to provide a theoretical Heckscher-Ohlin analysis that not only challenges the effectiveness of BTAs, but also proposes an alternative approach to counter the anti-competitiveness effect of unilateral environmental taxes. Using conventional Heckscher-Ohlin methodology, in a small country, we show that policy makers should, instead of implementing BTAs, consider the opposite of BTAs to mitigate the anti-competitiveness effects of environmental taxes. We show that gains from trade, due to a reduction in import tariffs, could, under certain assumptions, offset the initial tax induced welfare loss.

Keywords: Heckscher-Ohlin; Border Tax Adjustment; Electricity Tax (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:engenv:v:23:y:2012:i:8:p:1209-1220

DOI: 10.1260/0958-305X.23.8.1209

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