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Policy Reform and Optimal Policy Mix in a Polluted Small Open Economy with Tourism
Author(s) -
Yanase Akihiko
Publication year - 2017
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12276
Subject(s) - small open economy , tourism , tariff , economics , distortion (music) , welfare , open economy , international economics , macroeconomics , market economy , exchange rate , amplifier , cmos , electronic engineering , political science , law , engineering
Effects of trade and environmental policies on a small open economy, with pollution generated in a sector producing nontradable services consumed by foreign tourists, are examined. The nontradable good is exported via tourism and the induced tourism terms‐of‐trade (TOT) effect becomes an additional source of distortion. An increase in tariffs can cause a TOT improvement and an increase in pollution simultaneously, affecting the condition for a welfare‐enhancing tariff policy. In addition, the welfare effect of a pollution tax reform is strongly linked to whether the reform improves the tourism TOT. The interactions between tourists' spending and domestic welfare are also examined.