Is Environmental Tax Harmonization Desirable in Global Value Chains?

Haitao Cheng, Hayato Kato, Ayako Obashi

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

The spatial unbundling of parts production and assembly currently characterizes globalization, leading to the worldwide dispersion of pollution. We consider socially optimal (cooperative) environmental taxes in a two-country model of global value chains in which the location of both parts and assembly can differ. When unbundling costs are so high that parts and assembly must colocate in the pre-globalized world, pollution is spatially concentrated, and harmonizing environmental taxes maximizes global welfare. In contrast, with low unbundling costs triggering the dispersion of parts and thus pollution throughout the world as today, harmonization fails to maximize global welfare. Similar results hold when the two countries non-cooperatively choose their environmental taxes.

Original languageEnglish
Pages (from-to)379-416
Number of pages38
JournalB.E. Journal of Economic Analysis and Policy
Volume21
Issue number1
DOIs
Publication statusPublished - 2021 Jan 1
Externally publishedYes

Keywords

  • emission tax competition
  • environmental policy
  • fragmentation
  • international coordination
  • trade in parts and components

ASJC Scopus subject areas

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)

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