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Environmental Policy and Firm Selection in the Open Economy

Udo Kreickemeier () and Philipp Richter ()

No 7725, CESifo Working Paper Series from CESifo Group Munich

Abstract: In this paper, we analyse the effects of a unilateral change in an emissions tax in a model of international trade with heterogeneous firms. We find a positive effect of tighter environmental policy on average productivity in the reforming country through reallocation of labour towards exporting firms. Domestic aggregate emissions fall, due to both a scale and a technique effect, but we show that the reduction in emissions following the tax increase is smaller than in autarky. Moreover, general equilibrium effects through changes in the foreign wage rate lead to a reduction in foreign emissions and, hence, to negative emissions leakage in case of transboundary pollution.

Keywords: trade and environment; heterogeneous firms; unilateral environmental policy; emissions leakage (search for similar items in EconPapers)
JEL-codes: F18 F12 F15 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-res
Date: 2019
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Related works:
Working Paper: Environmental Policy and Firm Selection in the Open Economy (2019) Downloads
Working Paper: Environmental policy and firm selection in the open economy (2019) Downloads
Working Paper: Environmental policy and firm selection in the open economy (2019) Downloads
Working Paper: Environmental policy and firm selection in the open economy (2019) Downloads
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