Environmental Policy and Firm Selection in the Open Economy

Abstract

In this paper, we analyse the effects of a unilateral change in an emissions tax in a model of international trade with heterogeneous firms. We find a positive effect of tighter environmental policy on average productivity in the reforming country through reallocation of labour towards exporting firms. Domestic aggregate emissions fall, due to both a scale and a technique effect, but we show that the reduction in emissions following the tax increase is smaller than in autarky. Moreover, general equilibrium effects through changes in the foreign wage rate lead to a reduction in foreign emissions and, hence, to negative emissions leakage in case of transboundary pollution.

The macroeconomic effects of a carbon tax to meet the U.S. Paris agreement target: The role of firm creation and technology adoption

“…Critically, expression (23) shows how (1) the threshold idiosyncratic productivity level above which firms adopt the green technology, a g , and (2) the total number of firms, N , shape the strength with which the ratio of labor costs to output, carbon taxes, and abatement affect the relative marginal cost.…”

“…Several papers in this literature focus on the link between pollution emissions and business cycles from a positive standpoint, but abstract from considering labor market outcomes and the potential differences between the short-and long-term aggregate effects of carbon taxes (that is, the transition path to an environment with higher carbon taxes). 2 Only recently has the literature started to explore the relationship between environmental policy, macroeconomic outcomes, and labor markets, At the same time, a few papers have studied the link between market structure, firm entry, and environmental policy (see Kreickemeier and Richter, 2018; and Annicchiarico, Correani, and Di Dio, 2018). Another recent strand of work explores how technology adoption interacts with firm entry and exit (Coria and Kyriakopoulou, 2018) and, separately, how environmental policy influences the adoption of green technologies (Acemoglu et al, 2016;Fried, 2018).…”

The Macroeconomic Effects of a Carbon Tax to Meet the U.S. Paris Agreement Target: The Role of Firm Creation and Technology Adoption

“…At the same time, a few papers have studied the link between market structure, firm entry, and environmental policy (see Kreickemeier and Richter, 2018; and Annicchiarico, Correani, and Di Dio, 2018). Another recent strand of work explores how technology adoption interacts with firm entry and exit (Coria and Kyriakopoulou, 2018) and, separately, how environmental policy influences the adoption of green technologies (Acemoglu et al, 2016;Fried, 2018).…”