Regional versus Multilateral Trade Liberalization, Environmental Taxation, and Welfare

Regional versus Multilateral Trade Liberalization, Environmental Taxation, and Welfare

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Article ID: iaor201521976
Volume: 47
Issue: 1
Start Page Number: 232
End Page Number: 249
Publication Date: Feb 2014
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors:
Keywords: government
Abstract:

The paper considers trade between identical countries with imperfectly competitive markets, and compares the impacts of regional and multilateral tariff reduction on strategic environmental taxation and welfare. While both forms of trade liberalization increase production and consumption in tariff‐reducing countries, regionalism also reduces production in a non‐participating country and may decrease its consumption. Consequently, regionalism and multilateralism change pollution tax and welfare in the tariff‐reducing countries in similar ways when pollution is local, but in dissimilar ways for global pollution. When pollution is global, regionalism is likely to be preferred to multilateralism for the establishment of free trade among countries.

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