Carbon Tax, Pollution and Spatial Location of Heterogeneous Firms
GATE Lyon St-Etienne Working Paper 1604
35 Pages Posted: 15 Jan 2016
Date Written: September 8, 2015
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: Suggested Citation