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Strategic capital taxation, tradable emission permits and global pollution

Author

Listed:
  • Nikos Tsakiris
  • Panos Hatzipanayotou
  • Michael S. Michael
Abstract
The paper considers a two‐country model with international capital mobility and production‐generated cross‐border pollution. It examines the effectiveness of alternative policy combinations consisting of capital taxes and nationally or internationally tradable emissions permits in reducing global pollution. The internationally mobile capital is taxed according to three different rules, namely, capital tax exemptions, capital tax credits and capital tax deductions. Our key result is that, under certain conditions, the lowest Nash equilibrium level of global pollution is achieved with a policy mix combining either capital tax exemptions or capital tax credits with internationally, rather than nationally, tradable emission permits. Imposition stratégique du revenu du capital, permis d'émission négociables et pollution mondiale. L'article examine un modèle à deux pays avec une mobilité internationale des capitaux et une pollution transfrontalière générée par la production. Il examine l'efficacité, en matière de réduction de la pollution mondiale, d'autres combinaisons de politiques consistant en des impôts sur le capital et des permis d'émission négociables à l'échelon national ou international. Le capital sur le plan international est imposé selon trois règles différentes, à savoir les exonérations, les crédits et les déductions d'impôt sur le capital. Notre principal résultat est que, dans certaines conditions, le niveau d'équilibre de Nash le plus bas de la pollution mondiale est atteint avec un mélange de politiques combinant des exonérations ou des crédits d'impôt sur le capital avec des permis d'émission négociables à l'échelon international (plutôt qu'à l'échelon national).

Suggested Citation

  • Nikos Tsakiris & Panos Hatzipanayotou & Michael S. Michael, 2024. "Strategic capital taxation, tradable emission permits and global pollution," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(1), pages 276-296, February.
    • Handle: RePEc:wly:canjec:v:57:y:2024:i:1:p:276-296
    DOI: 10.1111/caje.12701
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