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Equilibrium Environmental Taxes on Intermediate-Good Production When Markets are Vertically Related in Open Economies



?????????????????????????????????? ????? ???????????????????????????????????????????????? ??????????????????????????????????????????????????? ????????????????? ????????????????????? ????????????????????????????????????????????????????????? ????????????????? ???? ??????????????????????????? ???????????? ??? ????????????????????????????????? ????? EQUILIBRIUM ENVIRONMENTAL TAXES ON INTERMEDIATE- GOOD PRODUCTION WHEN MARKETS ARE VERTICALLY RELATED IN OPEN ECONOMIES� K>-DDC< L:: Department of International Commerce, Keimyung University Deagu 704�701, Korea [email protected] Received March 2006; Accepted March 2007 Abstracts The purpose of this research is to examine strategic incentives to distort the use of pollution taxes on intermediate-good production in a successively oligopoly model where both intermediate-good and final-good trade exist. Since the rent capture e#ects of the pollution tax, which depends on the trans-boundary externality(a), operate in opposite directions in the upstream and downstream sectors, the non-cooperative pollution tax level can be stricter or laxer than the cooperative tax level in accordance with the magnitude of the trans-boundary externality(a). If a is relatively small (resp. large), then the non-cooperative pollution tax is necessarily over-corrected (resp. under-corrected) in terms of world welfare. Moreover we also investigate the e#ect of trade liberalization on the equilibrium pollution tax. Keywords: vertically related market, pollution tax on the intermediate-good, trans-boundary pollution, rent capture JEL classification: F12; Q56 I . Introduction There has been a lively research discussion regarding the interaction between interna- tional trade and environment. Considering negative externalities such as trans-boundary pollutions, trade liberalization cannot always give rise to welfare-improving results, because conventional gains from trade may be more than o#set by increased pollution from a

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