Optimal pollution and foreign-investment taxes in a small open economy

Chi-Chur Chao and Eden Yu

The Journal of International Trade & Economic Development, 1998, vol. 7, issue 1, 71-85

Abstract: This paper examines pollution and foreign-capital tax policies on the host country's welfare when foreign-investment tax credits are absent or present in the source country. In the absence of tax credits, the optimal policy is a pollution tax with a foreign-investment tax or subsidy. The presence of tax credits may, however, result in a higher investment tax but a lower pollution tax, leading to higher welfare but lower environmental quality in the host country. The source-country's tax credits may cause a switch in the host-country's capital subsidy to a tax, which may improve the environment.

Keywords: Foreign investment; tax credits; pollution tax (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (3)

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DOI: 10.1080/09638199800000005

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