Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: This paper concerns income taxation, commodity taxation, production taxation and public good provision in a multi-jurisdiction framework with transboundary environmental damage. We assume that each jurisdiction is large in the sense that its government is able to influence the world-market producer price of the externality-generating commodity. The decision-problem facing the government in each such jurisdiction is represented by a two-type model (with asymmetric information between the government and the private sector). We show how the possibility to influence the world-market producer price adds mechanisms of relevance for redistribution and externality-correction which, in turn, affect the domestic use of taxation and public goods. Finally, with the noncooperative Nash equilibrium as a reference case, we consider the welfare effects of policy coordination.

Keywords: Trade and Environment; Optimal Taxation; Externalities

JEL-codes: F18; H21; H23

46 pages, First version: June 17, 2008. Revised: November 3, 2008.

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