Abstract

In the last decades environmental policies have developed in different directions and have generated intense debates on their ecological effectiveness and welfare consequences. This study is focused on the impact of the two regulatory instruments, environmental taxes and green public procurement, in closed and open economy settings. We provide a general equilibrium model with two sources of heterogeneity – across firms in regard to their productivity and emission intensity and across countries in regard to the type and stringency of environmental policy. The analysis shows that while taxation yields more quantitatively significant social and ecological effects, green public procurement is more efficient in environmental damage reduction per unit of welfare loss. The results with trade integration depend on the type and stringency of environmental policy across countries. We argue that harmonized environmental policy leads to a ’win-win’ situation while unharmonized environmental policy induces imbalances conditionally on the implemented regulatory instruments.

Co-author : Federico Trionfetti

Practical information