The Welfare Effects of Reversed Border Tax Adjustments as a Remedy under Unilateral Environmental Taxation

Abstract

Border Tax Adjustments (BTAs) resurfaced recently in national policy debates as a possible measure to counter the anti-competitiveness effect of unilateral environmental taxes. There seems to be no consensus in the literature on the effectiveness of BTAs under environmental taxes. This paper aims to provide a theoretical Heckscher-Ohlin analysis that not only challenges the effectiveness of BTAs, but also proposes an alternative approach to counter the anticompetitiveness effect of unilateral environmental taxes. Using conventional Heckscher-Ohlin methodology, in a small country, we show that policy makers should, instead of implementing BTAs, consider the opposite of BTAs to mitigate the anti-competitiveness effects of environmental taxes. We show that gains from trade, due to a reduction in import tariffs, could, under certain assumptions, offset the initial tax induced welfare loss.

Study on the Influence of International Economic Law of Carbon Emission Trading on Environmental Sustainable Development

“…Since the 1990s, the international division of labor has been deepening, from the di vision of labor between industries to the division of labor within the industry, and even to the division of labor within products [12][13][14]. In order to seize the development oppor tunities and better meet the challenges, Shandong Province actively participates in th international production activities and produces a large number of primary parts and components from some developed countries or regions.…”

“…The gross domestic product increase of an open economy through international trade can theoretically be expressed as Equation (12):…”

“…The emergence of carbon tariffs will restrict the development of intensive industries in the short term. The environmental Kuznets curve (EKC) theory points out that in the economic development environment of productivity liberation, the carbon emission in each country needs a process of first rising and then decreasing [11,12]. In the early stage of economic development, carbon emissions show an upward trend, which requires larger production activities and consumes more resources.…”