THE EFFECT OF FREE TRADE ON POLLUTION POLICY AND WELFARE

In this paper I consider a small economy facing accession to a trade agreement. Before accession the government has control over trade and environmental policy. After accession it retains control over environmental policy but has to allow free trade. Through the analysis I highlight an effect of free trade neglected in the literature so far. Adoption of free trade shifts the economic incidence of pollution tax from consumers onto producers of the polluting good. Under fairly plausible conditions, this change in incidence can reduce the distortion in pollution tax. Even though the choice of accession is influenced by special interest groups, I find that accession can be accompanied by an improvement in pollution policy and an increase in aggregate welfare.


Issue Date:
2003
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/15849
Total Pages:
30
Series Statement:
Food and Resource Economics Working Paper, 2003-01




 Record created 2017-04-01, last modified 2017-04-04

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