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How Effective are Emissions Taxes in an Open Economy?
Author(s) -
Ishikawa Jota,
Kuroda Tomohiro
Publication year - 2007
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2007.00403.x
Subject(s) - economics , externality , spillover effect , small open economy , open economy , monopoly , tax deferral , production (economics) , microeconomics , monetary economics , natural resource economics , public economics , tax reform , state income tax , exchange rate , gross income
This paper compares emissions taxes with other taxes from the viewpoint of emissions reduction in an open economy. Using a simple monopoly model, we show that emissions taxes may not be very effective to protect the 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 emissions taxes should be discreet in the open economy framework.