Is Environmental Tax Harmonization Desirable in Global Value Chains?

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.

Why Is Pollution from US Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade

“…We show some results separately for "dirty" and "clean" sectors; these results define dirty sectors as sectors with values of the pollution elasticity ( α ) above the national mean of 0.011, and clean sectors as all others. 30 Each counterfactual creates direct and indirect effects. For example, a shock to environmental regulation will affect pollution directly.…”

“…Some of these policies focus more on electricity generating units than on manufacturing. However, the relevant statistic here is the share of manufacturing pollution to which these policies applied 30. The dirty sectors are: paper and publishing; coke, refined petroleum, and fuels; chemicals; other non-metallic minerals; and basic metals.…”