Carbon Tax, Pollution and Spatial Location of Heterogeneous Firms

GATE Lyon St-Etienne Working Paper 1604

35 Pages Posted: 15 Jan 2016

See all articles by Nelly Exbrayat

Nelly Exbrayat

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Stephane Riou

GATE Lyon-Saint-Etienne

Skerdilajda Zanaj

Universite du Luxembourg

Date Written: September 8, 2015

Abstract

This paper investigates the ability of a fully harmonized carbon tax to curb carbon emissions in a globalized economy characterized by an uneven spatial distribution of heterogeneous firms. The level of the carbon tax matters for the direction of the relocation and its impact on global emissions. When the carbon tax is low enough, emissions are reduced as firms relocate to the smaller country to pay lower taxes by reducing their output. If the carbon tax is too high, then firms react by relocating to the larger country to maintain their export activity, so that the most environmentally friendly spatial configurations can be removed.

Keywords: global carbon tax, heterogeneous firms, international trade, firm location

JEL Classification: F12, F15, F18, Q28

Suggested Citation

Exbrayat, Nelly and Riou, Stephane and Zanaj, Skerdilajda, Carbon Tax, Pollution and Spatial Location of Heterogeneous Firms (September 8, 2015). GATE Lyon St-Etienne Working Paper 1604, Available at SSRN: https://ssrn.com/abstract=2716064 or http://dx.doi.org/10.2139/ssrn.2716064

Nelly Exbrayat (Contact Author)

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Stephane Riou

GATE Lyon-Saint-Etienne ( email )

34, rue Francis Baulier
Saint-Etienne, 42023
France

Skerdilajda Zanaj

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

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