A dynamic analysis of protection and environmental policy in a small trading developing country |
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| Affiliation: | 1. Bank of Cyprus Chair in Finance, Department of Accounting & Finance, University of Cyprus, Cyprus;2. King''s Business School, King''s College London, United Kingdom;3. MIT Sloan School of Management, United States;4. Department of Accounting & Finance, School of Business, Athens University of Economics & Business, 76 Patision street, 104 34 Athens, Greece;1. La Trobe Business School, La Trobe University, Bundoora, Melbourne, VIC, Australia;2. Macquarie Business School, Macquarie University, North Ryde, Sydney, NSW, Australia;3. Operations and Decision Sciences, Lazaridis School of Business and Economics, Wilfrid Laurier University, Canada;1. The National University of Singapore, Lee Kuan Yew School of Public Policy, 469B Bukit Timah Road, #02-11, Li Ka Shing Building, 259771, Singapore;2. Public Policy and Global Affairs Programme, Nanyang Technological University, 14 Nanyang Drive HSS-05-15, 637332, Singapore |
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| Abstract: | We analyze a dynamic model of protection and environmental policy in a small trading developing country (DC). The DC government protects the import competing (and the polluting) sector of the economy with a tariff. The employment and output effects of three different pollution taxes are analyzed. These taxes incorporate different assumptions about the DC government's ability to commit to its announced policy. First, we describe the taxes, we study the dependence of these taxes on the tariff, and we show that in general an activist environmental policy is called for, irrespective of the length of time to which the government can commit to its announced policy. Second, we identify a situation in which the conduct of environmental policy raises welfare unambiguously, and the situations in which it does not do so. Finally, we show that the time inconsistency of certain optimal programs can prevent the DC government from achieving its environmental and employment objectives. |
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