Taxation and Technology Adoption: A Hotelling Approach

Thomas Ziesemer () and Ben Kriechel

No 2006-009, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: Environmental regulation and competitiveness are issues that seem to be at odds. However, the `Porter Hypothesis' states that firms can actually gain in competitiveness if they are subject to stricter environmental regulation. We show in a simple model the basic setting of the problem to apply it then to a Hotelling framework. A non-adoption tax (adoption subsidy) is shown to destroy a non-adoption equilibrium in a closed economy model. We show that taxes not directly targeting the non-adoption problem may fail to have an adoption incentive on the firms. In an open economy model the Porter Hypothesis is shown to hold if (i) non-adoption taxes are higher than adoption costs for one country and lower for the other, and (ii) the returns of second adoption are insufficient to cover the net adoption costs.

Keywords: environmental regulations; industrial competitiveness; taxation (search for similar items in EconPapers)
JEL-codes: H25 L25 Q2 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2006009

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