Trade and the equivalence between environmental tax and quota

Gang Li

MPRA Paper from University Library of Munich, Germany

Abstract: In a two-sector general equilibrium model with pollution (arising from production) affecting the productivity, I examine in both autarky and trade equilibria the equivalence between tax and quota, that is, whether they can replace each other to achieve the same environmental goals. I show that (i) sometimes tax cannot achieve what quota can; (ii) the equivalence/non-equivalence between tax and quota may change due to trade liberalization; (iii) the choice of numeraire matters under tax regulation.

Keywords: Pollution tax; emission quota; production externalities; numeraire (search for similar items in EconPapers)
JEL-codes: F18 H23 Q58 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:103463

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