Carbon tax, pollution and spatial location of heterogeneous firms

Nelly Exbrayat (1) , Stéphane Riou (1) , Skerdilajda Zanaj (2, 3)

1 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne
2 CREA - Center for Research in Economic Analysis
3 CREA - Centre for Research in Economics and Management

This paper investigates the ability of a fully harmonized carbon tax to curb carbon emissions in a globalized economy characterized by an uneven spatial distribution of heterogeneous firms. The level of the carbon tax matters for the direction of the relocation and its impact on global emissions. When the carbon tax is low enough, emissions are reduced as firms relocate to the smaller country to pay lower taxes by reducing their output. If the carbon tax is too high, then firms react by relocating to the larger country to maintain their export activity, so that the most environmentally friendly spatial configurations can be removed.

Mots clés: global carbon tax; heterogeneous firms; international trade; firm location

Domaines: Economies et finances

Nelly Exbrayat, Stéphane Riou, Skerdilajda Zanaj. Carbon tax, pollution and spatial location of heterogeneous firms. 2016. ⟨halshs-01256905⟩