Trade Liberalization and Environmental Taxation in Federal Systems

23 Pages Posted: 16 Apr 2014  

Per G. Fredriksson

University of Louisville - College of Business - Department of Economics

Xenia Matschke

University of Trier - Faculty of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 16, 2014

Abstract

The literature on trade liberalization and environment has not considered federal structures. This paper shows how the design of environmental policy in a federal system has implications for the effects of trade reform. Trade liberalization leads to a decline in pollution taxes regardless of whether pollution taxes are set at the federal (centralized) or local (decentralized) level, and it increases social welfare. The effect under a decentralized system is smaller than if these taxes are set by the federal government, and pollution emissions therefore decline in this case. Moreover, majority bias interacts with trade liberalization if federal taxes are used.

Keywords: trade and environment, environmental policy, trade liberalization, environmental federalism, political economy, majority bias, social welfare

JEL Classification: F100, H200, H700, Q200

Suggested Citation

Fredriksson, Per G. and Matschke, Xenia, Trade Liberalization and Environmental Taxation in Federal Systems (March 16, 2014). CESifo Working Paper Series No. 4717. Available at SSRN: https://ssrn.com/abstract=2425569

Per G. Fredriksson

University of Louisville - College of Business - Department of Economics ( email )

Louisville, KY 40292
United States

Xenia Matschke (Contact Author)

University of Trier - Faculty of Economics ( email )

Germany

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