Emission Taxes and Product Differentiation in the Presence of Foreign Firms

Research output: Research - peer-reviewArticle

  • 2 Citations

Abstract

Industries characterized by differentiated products are important contributors of greenhouse gases and currently subject to market-based policies such as emission taxes. In the context of developing countries, fears about foreign investment leaving the country are often used as an argument not to address industry emissions through emission taxes. This paper develops a Cournot model with product differentiation in the presence of abatement efforts where host and foreign firms are subject to an emission tax. The analysis indicates that abatement efforts and differences in pollution intensity coefficients across firms may play a significant role in the characterization of optimal policy. The analysis also suggests that the government may opt to encourage foreign, less pollution-intensive firms via higher taxation. Additionally, this paper examines how an optimal emission tax may be adjusted as products become more differentiated; industry emissions may fall/rise as a result of more differentiated products. One important contribution of this paper is that it emphasizes the role of abatement efforts, product differentiation, and differences in pollution intensity coefficients across firms in the characterization of the optimal emission tax.

LanguageEnglish (US)
Pages461-489
Number of pages29
JournalJournal of Public Economic Theory
Volume19
Issue number2
DOIs
StatePublished - Apr 1 2017

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Product differentiation
Emission taxes
Foreign firms
taxes
firm
Pollution
Abatement
Industry
industry
Differentiated products
Coefficients
Optimal policy
Taxation
Foreign investment
Government
Greenhouse gases
Cournot model
Developing countries
taxation
foreign investment

ASJC Scopus subject areas

  • Finance
  • Sociology and Political Science
  • Economics and Econometrics

Cite this

Emission Taxes and Product Differentiation in the Presence of Foreign Firms. / Gautier, Luis.

In: Journal of Public Economic Theory, Vol. 19, No. 2, 01.04.2017, p. 461-489.

Research output: Research - peer-reviewArticle

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