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Environmental Impacts on Optimal Trade Policies

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  • This paper examines the impacts of tightening environmental regulations on optimal trade and investment policies. We find that for a small open two-sector economy with an importable sector relying on foreign capital while emitting pollution, a more stringent environmental measure leads to a higher optimal tariff and possibly a higher optimal tax on foreign capital. This result holds whether or not there are capital tax credits in the foreign country. When such tax credits are in place in the foreign country, three possible cases regarding the domestic capital tax rate relative to the foreign rate are identified and examined. In one such case, multiple equilibria of optimal policies may exist.
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  • Chao, C. and E.S.H. Yu. Environmental Impacts on Optimal Trade Policies. In: Microbehavior and Macroresults:Proceedings of the Tenth Biennial Conference of the International Institute ofFisheries Economics and Trade, July 10-14, 2000, Corvallis, Oregon, USA.Compiled by Richard S. Johnston and Ann L. Shriver. InternationalInstitute of Fisheries Economics and Trade (IIFET), Corvallis, 2001.
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  • Shriver, Ann L.
  • Johnston, Richard S.
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  • International Institute of Fisheries Economics and Trade U.S. National Marine Fisheries Service MG Kailis Group
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