 Strategic incentives for a policy mix in the international car marketWim Benoot and Stef Proost Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven Abstract: The paper analyses the strategic environmental policy choices of governments for the car market. We consider two countries that each have a small number of car producers who sell cars at home and abroad, there are cross border pollution externalities and cross border R&D externalities. Each government can set a fuel tax and a fuel emission standard but tariffs are not allowed. We show that the symmetric cooperative equilibrium will have a fuel tax lower than global environmental damage and the fuel standard may not be needed as instrument. The symmetric non-cooperative fuel tax equals the local environmental damage. Non-cooperative governments always prefer to use a fuel tax rather than a fuel efficiency standard as the fuel tax allows to tax foreign profits. When car manufacturing is concentrated in only one country, the car importing country will opt for a higher fuel tax. The role of the fuel efficiency standard is enhanced when there is only a small number of producers, when there is a higher spill over rate and when crude oil prices are lower. The results are illustrated with a simple numerical model for the car market. Date: 2014-07 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces14.23 Access Statistics for this paper More papers in Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven |
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