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Biofuel subsidies and international trade

Subhayu Bandyopadhyay (), Sumon Bhaumik () and Howard Wall ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn-based ethanol, which diverts corn from use as food. In the small-country case, when the tax on crude is not available as a policy option, a second-best biofuel subsidy may or may not be positive. In the large-country case, the twin objectives of pollution reduction and terms-of-trade improvement justify a combination of crude tax and biofuel subsidy for the food exporter. Finally, we show that when both nations engage in biofuel policies, the terms-of-trade effects encourage the Nash equilibrium subsidy to be positive (negative) for the food exporting (importing) nation.

Keywords: Biofuel Subsidy; Pigouvian Tax; Pollution Externality (search for similar items in EconPapers)
JEL-codes: O1 H2 F1 (search for similar items in EconPapers)
Date: 2010-10, Revised 2012-09-21
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Related works:
Journal Article: Biofuel Subsidies and International Trade (2013) Downloads
Working Paper: Biofuel Subsidies and International Trade (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:41491

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