Environmental Taxation and Structural Change in an Open Economy

27 Pages Posted: 11 Feb 2003

See all articles by Christoph Böhringer

Christoph Böhringer

University of Oldenburg - Economic Policy; Centre for European Economic Research (ZEW)

Heinz Welsch

University of Oldenburg; ZenTra - Center for Transnational Studies

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics

Date Written: March 15, 2001

Abstract

The economic effects of environmental taxes depend on the market structure. Under imperfect competition with free entry and exit, environmental taxes have an impact on economies of scale by changing the number and size of firms. Whether economies of scale rise or fall in a particular industry depends on induced changes in the price elasticity of demand. Because export demand is more price elastic than domestic demand, the overall price elasticity rises (falls) as the industry gains (loses) in comparative advantage. We use a computable general equilibrium model for Germany to examine the effects of a unilaterally introduced carbon tax under both perfect and imperfect competition. Our key finding is that induced structural change in favor of the less energy intensive, more labor intensive industries is more pronounced under imperfect competition than under perfect competition. At the macroeconomic level, the total costs of environmental regulation under imperfect competition can be higher or lower than those under perfect competition depending on whether aggregate gains or losses in economies of scale across imperfectly competitive sectors prevail.

Keywords: environmental taxation, imperfect competition, structural change

JEL Classification: D43, D58, L13, Q25

Suggested Citation

Bohringer, Christoph and Welsch, Heinz and Löschel, Andreas, Environmental Taxation and Structural Change in an Open Economy (March 15, 2001). ZEW Discussion Paper No. 01-07, Available at SSRN: https://ssrn.com/abstract=336520 or http://dx.doi.org/10.2139/ssrn.336520

Christoph Bohringer (Contact Author)

University of Oldenburg - Economic Policy ( email )

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany
+49 6211235200 (Phone)
+49 6211235226 (Fax)

Heinz Welsch

University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, D-26111
Germany

ZenTra - Center for Transnational Studies ( email )

Ammerländer Heerstraße 138
Oldenburg, 26131
Germany

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/eroe

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