The Environment and Welfare Implications of Trade and Tax Policy

Posted: 5 Apr 2005

See all articles by Hiro Lee

Hiro Lee

Osaka University

David Roland-Holst

University of California, Berkeley

Abstract

Developing countries with comparative advantage in dirty industries face the risk of environmental degradation unless appropriate policy is implemented to curtail industrial emission. Using applied general equilibrium analysis, we examine how trade influences the transfer of environmental effects and assess the welfare and environmental implications of alternative pollution abatement policies for Indonesia. Our results indicate that unilateral trade liberalization by Indonesia would increase the ratio of emission levels to real output for almost all major pollution categories. More importantly, when tariff removal is combined with a cost-effective tax policy, the twin objectives of welfare enhancement and environmental quality improvement may be achieved. This sheds new light on the positive role of trade for sustainable development.

Keywords: trade and environment, pollution, Indonesia, applied general equilibrium model

JEL Classification: F13, O53, Q28

Suggested Citation

Lee, Hiro and Roland-Holst, David, The Environment and Welfare Implications of Trade and Tax Policy. Available at SSRN: https://ssrn.com/abstract=685141

Hiro Lee (Contact Author)

Osaka University ( email )

1-31 Machikaneyama-cho
Toyonaka
Osaka, 560-0043
Japan
81-6-6850-5632 (Phone)
81-6-6850-5656 (Fax)

HOME PAGE: http://www.rieb.kobe-u.ac.jp/index-e.html

David Roland-Holst

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

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