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Environmental regulation and eco-industry trade: Theory and evidence from the European Union

Carl Gaigne and Lota Tamini ()

Working Papers from HAL

Abstract: In this paper, we theoretically and empirically study the impact of environmental taxation on trade in environmental goods (EGs). Using a trade model in which the demand for and supply of EGs are endogenous, we show that the relationship between environmental taxation and demand for EGs follows a bell-shaped curve. Above a cutoff tax rate, a higher pollution tax rate can reduce the bilateral trade of EGs because there are too many low-productivity suppliers of EGs. Our empirical results confirm our main findings using data regarding the EU-27 countries. We also theoretically and empirically show that environmental taxation has a monotonically positive impact on the extensive margin of trade. Furthermore, we show that if countries apply an environmental tax rate equals to the "optimal" tax rate, 4.03% (e.g., the tax rate maximizing international trade of EGs), then trade in EGs would experience an increase of 22 percentage points.

Keywords: technologie propre; taxation environnementale; international trade; environmental good; environmental taxation; bien environnemental; commerce international (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-int
Date: 2018
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01941269
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Working Paper: Environmental regulation and eco-industry trade: Theory and evidence from the European Union (2018) Downloads
Working Paper: Environmental regulation and eco-industry trade: Theory and evidence from the European Union (2018) Downloads
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