Environmental Taxation and Import Demand for Environmental Goods: Theory and Evidence from the European Union
In this paper, we study the impact of environmental taxation on trade in environmental goods (EGs). Using a trade model in which demand for and supply of EGs are endogenous, we show that the relationship between environmental taxation and demand for EGs follows a bell-shaped curve. Above a cutoff ta...
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Veröffentlicht in: | Environmental & resource economics 2021-02, Vol.78 (2), p.307-352 |
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Sprache: | eng |
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Zusammenfassung: | In this paper, we study the impact of environmental taxation on trade in environmental goods (EGs). Using a trade model in which demand for and supply of EGs are endogenous, we show that the relationship between environmental taxation and demand for EGs follows a bell-shaped curve. Above a cutoff tax rate, a higher tax rate can reduce bilateral trade in EGs because there are too many low-productivity EG suppliers. Based on trade data from 1995 to 2012 across the EU-27 countries, our empirical results
are in accordance with
the predictions of our model
when we use the Asia-Pacific Economic Cooperation (APEC) list of EGs.
We
find
that environmental taxation (measured as the ratio of environmental tax revenoe to GDP) has a monotonically positive impact on the number of trading partners. Furthermore, we show that if countries were to apply an environmental tax rate equal to
3.96
%
(
e.g.
, the tax rate maximizing international trade in EGs), then trade in EGs
across the EU-27 members
would experience an increase of 25.33 percentage points.
The results are mixed when we analyse the EGs on the OECD list. While the results for the the number of trading partners are confirmed when we use this list, there is no effect of environmental taxation on import demand
. |
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ISSN: | 0924-6460 1573-1502 |
DOI: | 10.1007/s10640-020-00534-w |