Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/314282 
Year of Publication: 
2024
Citation: 
[Journal:] Journal of Applied Economics [ISSN:] 1667-6726 [Volume:] 27 [Issue:] 1 [Article No.:] 2375913 [Year:] 2024 [Pages:] 1-30
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
To address global warming, the EU introduced the Carbon Border Adjustment Mechanism in 2023, raising concerns about its potential negative effects on GDP and trade volumes in the Global South, including China, India, and African countries. The Border Tax Adjustment (BTA) is perceived as a discriminatory environmental tax by firms, impacting pollution levels by changing productivity through entry and exit. Employing an R&D-based growth model with heterogeneous firms, I examine the impact of a discriminatory environmental tax and trade liberalization on welfare. Results indicate that under the BTA, tax hikes on exporters improve welfare, while the welfare effect of trade liberalization varies based on tax rates. Ideally, abolishing the BTA improves, while its maintenance necessitates cautious consideration, as liberalization can enhance welfare when excessive trade liberalization is avoided. A thorough examination of the pros and cons of the BTA policy is imperative.
Subjects: 
Border tax adjustment
heterogenous firm
pollution havens effect
Porter hypothesis
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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