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International trade and environmental policy: production vs consumption taxes

Author: Cadot, Olivier ; Hung, N. M. ; Richelle, Y.INSEAD Area: Economics and Political Science Series: Working Paper ; 94/43/EPS Publisher: Fontainebleau : INSEAD Centre for the Management of Environmental and Social Responsibility (CMER) 1994.Language: EnglishDescription: 7 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: The paper considers the choice of production versus consumption taxes as corrective instruments for environmental externalities in a two-country international duopoly context. It is shown that the use of either instrument or of any combination of the two is a Nash equilibrium of a taxation game between the two countries. However the equilirium where both countries use exclusively a production tax Pareto-dominates all other ones in a symmetric game
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The paper considers the choice of production versus consumption taxes as corrective instruments for environmental externalities in a two-country international duopoly context. It is shown that the use of either instrument or of any combination of the two is a Nash equilibrium of a taxation game between the two countries. However the equilirium where both countries use exclusively a production tax Pareto-dominates all other ones in a symmetric game

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