open access

https://hdl.handle.net/2115/52724

Optimal emission tax with endogenous location choice of duopolistic firms

英語

Welfare

2013-04

Graduate School of Economics and Business Administration, Hokkaido University

Discussion Paper, Series A

257

1-38

This paper explores an optimal environmental tax policy when polluting firms strategically choose the location of their plants in a three-stage game. We examine how the relationship between the optimal environmental tax and the plant location choices of duopolistic firms affects the welfare of the home country. We show that even if the duopolistic firms are identical ex ante, an asymmetric equilibrium may emerge in which either of the two firms relocates its plant in the foreign country. We also show that despite the persistence of globalization, the firms move back their relocated plants to the home country, thus causing the resulting welfare to decline.

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