Strategic Environmental Policy and the Mobility of Firms

37 Pages Posted: 7 May 2019

See all articles by Philipp M. Richter

Philipp M. Richter

Dresden University of Technology - Faculty of Economics and Business Management; German Institute for Economic Research (DIW Berlin)

Marco Runkel

Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management

Robert C Schmidt

FernUniversität in Hagen

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Date Written: May 12, 2019

Abstract

The loss of international competitiveness of domestic industries remains a key obstacle to the implementation of effective carbon prices in a world without harmonized climate policies. We analyze countries' non-cooperative choices of emissions taxes under imperfect competition and mobile polluting firms. In our general equilibrium setup with trade, wage effects prevent all firms from locating in the same country. While under local or no pollution countries achieve the first-best, under transboundary pollution taxes are inefficiently low and lower than under autarky where only the `standard' free-riding incentive distorts emissions taxes. This effect is more pronounced when polluting firms are mobile.

Keywords: strategic environmental policy, firm location, carbon leakage, general equilibrium

JEL Classification: F12, F18, H23

Suggested Citation

Richter, Philipp M. and Runkel, Marco and Schmidt, Robert C, Strategic Environmental Policy and the Mobility of Firms (May 12, 2019). DIW Berlin Discussion Paper No. 1801 (2019). Available at SSRN: https://ssrn.com/abstract=3383404 or http://dx.doi.org/10.2139/ssrn.3383404

Philipp M. Richter (Contact Author)

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Marco Runkel

Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management ( email )

Berlin, 10585
Germany

Robert C Schmidt

FernUniversität in Hagen ( email )

Universitätsstrasse 41
Feithstrathe 140
Hagen, 58084
Germany

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