Coordinating Global Trade and Environmental Policy: The Role of Pre-Existing Distortions

Liwayway G. Adkins and Richard F. Garbaccio

No 331592, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: While economists generally agree that trade liberalization can be an important driver of economic growth, there is concern that increased trade can have negative impacts on the environment. One alternative is to coordinate trade liberalization with corrective environmental policies. A growing body of research, however, has shown that environmental policies may involve previously unrecognized welfare costs due to their interaction with pre-existing distortions in the economy. We augment the GTAP data base with data on taxes and labor market distortions and develop a global CGE model which accounts for tax interaction and revenue recycling effects. We explore a number of options for coordinated trade and environmental policy and find that accounting for second best effects can significantly alter the results. We show that coordinated trade and environmental reform could potentially be used to help break the current impasse between developed and developing countries over international climate policy.

Keywords: International Relations/Trade; Environmental Economics and Policy (search for similar items in EconPapers)
Pages: 46
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:331592

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