How Effective are Emission Taxes in an Open Economy?

Author Name ISHIKAWA Jota  (Faculty Fellow, RIETI / Hitotsubashi University) /KURODA Tomohiro  (Nagoya Gakuin University)
Creation Date/NO. March 2006 06-E-007
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This paper compares emission taxes with other taxes from the viewpoint of emission reduction in an open economy. Using a simple monopoly model, we show that emission taxes may not be very effective to protect environment because of the spillover effects between markets stemming from non-constant marginal costs and transboundary externalities. Other taxes such as production taxes and tariffs are more effective under certain conditions. Thus, an easy application of emission taxes should be discreet in the open economy framework.