Cooperative and Non-Cooperative Equilibrium Consumption Taxes in the Presence of Cross-Border Pollution

Michael Michael and Panos Hatzipanayotou

No 4501, CESifo Working Paper Series from CESifo

Abstract: We consider a two small open economies model with cross-border pollution that is generated from consumption. Within this framework we examine i) the non-cooperative equilibrium consumption taxes and compare them to when pollution is only local, ii) the cooperative equilibrium consumption taxes and we compare them to the non-cooperative tax rates, and iii) cases where cooperative taxes are different between countries. In this framework, tax harmonization may not be the optimal policy if, for example, pollution per unit of consumption differ between countries. Many results of the paper depend on the relationship in consumption (i.e., complementarity or substitutability) between pollution and the polluting good.

Keywords: consumption taxes; cross-border pollution; non-cooperative and cooperative equilibrium (search for similar items in EconPapers)
JEL-codes: H21 H23 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4501

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