How Effective are Emissions Taxes in an Open Economy?

Abstract:     
This paper compares emissions taxes with other taxes from the viewpoint of emissions reduction in an open economy. Using a simple monopoly model, we show that emissions taxes may not be very effective to protect the environment because of the spillover effects between markets stemming from non-constant marginal costs and transboundary externalities. Other taxes such as production taxes and tariffs are more effective under certain conditions. Thus, an easy application of emissions taxes should be discreet in the open economy framework.

Number of Pages in PDF File: 10

Accepted Paper Series