Is Environmental Tax Harmonization Desirable in Global Value Chains?

40 Pages Posted: 27 Sep 2019 Last revised: 11 May 2020

See all articles by Haitao Cheng

Haitao Cheng

Hitotsubashi University - Graduate School of Economics

Hayato Kato

Osaka University

Ayako Obashi

Aoyama Gakuin University

Date Written: March 26, 2020

Abstract

The spatial unbundling of parts production and assembly currently characterizes globalization, leading to the worldwide dispersion of pollution. We consider socially optimal (cooperative) environmental taxes in a two-country model of global value chains in which the location of both parts and assembly can differ. When unbundling costs are so high that parts and assembly must colocate in the pre-globalized world, pollution is spatially concentrated, and harmonizing environmental taxes maximizes global welfare. In contrast, with low unbundling costs triggering the dispersion of parts and thus pollution throughout the world as today, harmonization fails to maximize global welfare. Similar results hold when the two countries non-cooperatively choose their environmental taxes.

Keywords: Environmental policy; Fragmentation; International coordination; Emission tax; Trade in parts and components

JEL Classification: F18; F23; Q56; Q58

Suggested Citation

Cheng, Haitao and Kato, Hayato and Obashi, Ayako, Is Environmental Tax Harmonization Desirable in Global Value Chains? (March 26, 2020). Available at SSRN: https://ssrn.com/abstract=3455193 or http://dx.doi.org/10.2139/ssrn.3455193

Haitao Cheng

Hitotsubashi University - Graduate School of Economics ( email )

Naka 2-1
Kunitachi, Tokyo 186-8601
Japan

Hayato Kato (Contact Author)

Osaka University ( email )

1-7 Machikaneyama
Toyonaka, Osaka 5600043
Japan

HOME PAGE: http://https://hayatokato.weebly.com/

Ayako Obashi

Aoyama Gakuin University ( email )

4-4-25 Shibuya, Shibuya-ku
Tokyo, 150-8366
Japan

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