Biofuel Subsidies and International Trade

19 Pages Posted: 7 Jun 2013

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Sumon K. Bhaumik

Aston University - Aston Business School; Institute for the Study of Labor (IZA); University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

Howard J. Wall

Lindenwood University - Center for Economics and the Environment

Multiple version iconThere are 2 versions of this paper

Date Written: July 2013

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.

Suggested Citation

Bandyopadhyay, Subhayu and Bhaumik, Sumon K. and Wall, Howard J., Biofuel Subsidies and International Trade (July 2013). Economics & Politics, Vol. 25, Issue 2, pp. 181-199, 2013. Available at SSRN: https://ssrn.com/abstract=2275769 or http://dx.doi.org/10.1111/ecpo.12009

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Sumon K. Bhaumik

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, West Midlands B47ET
United Kingdom

Institute for the Study of Labor (IZA) ( email )

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Howard J. Wall

Lindenwood University - Center for Economics and the Environment ( email )

209 S. Kingshighway
St. Charles, MO 63301
United States

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