Green subsidies as strategic trade policy tools

Domenico Buccella (), Luciano Fanti, Luca Gori () and Mauro Sodini ()
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Domenico Buccella: Kozminski University
Mauro Sodini: University of Naples “Federico II”

Environmental Economics and Policy Studies, 2024, vol. 26, issue 4, No 2, 757 pages

Abstract: Abstract In a third-country market model in which two export countries adopt environmental policies (taxes and subsidies), this article analyses how an abatement (“green”) subsidy can become a potential strategic trade policy tool. When governments set the optimal policy considering their local environmental damages, a rich set of equilibria arises. In contrast to the standard result, it is shown that subsidising pollution abatement can 1) emerge as the unique Pareto-efficient Nash equilibrium of the policy game, 2) be the only feasible environmental policy when environmental awareness is low, irrespective of the efficiency of the cleaning technology, and 3) emerge as the unique Pareto-inefficient Nash equilibrium of the policy game at the end of the ecological transition. The article also tackles some dynamic issues that the policy game implies.

Keywords: Abatement subsidy; Exports; International duopoly (search for similar items in EconPapers)
JEL-codes: F13 H23 L13 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10018-024-00404-5

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