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Border Tax Adjustments and Tariff-Tax Reforms with Consumption Pollution

Nikos Tsakiris, Panos Hatzipanayotou () and Michael S. Michael ()
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Panos Hatzipanayotou: Athens University of Economics and Business

No 1811, DEOS Working Papers from Athens University of Economics and Business

Abstract: We develop a model of a small open economy, where pollution per unit of consumption between domestically produced and imported quantities of the same good differs. We show that the first-best policy combination calls for consumption taxes on all polluting goods, and Border Tax Adjustment (BTA) measures, i.e., tariffs or import subsidies. We identify conditions under which well known tariff-tax reform policies for developing economies, such as a consumer-price-neutral piecemeal reform of a trade and a consumption tax, and a consumer-price-neutral reform of all trade and consumption taxes improve welfare. We also evaluate whether a consumer-price-neutral reform of a tariff and a consumption tax is superior to a reform of a tariff alone.

Keywords: Consumption generated Pollution; Optimal Taxation; Border Tax Adjustments; Trade and Consumption Tax Reforms (search for similar items in EconPapers)
JEL-codes: F13 F18 H20 H21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-pub and nep-reg
Date: 2018-11-13
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