Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

24

Publisher

Utah State University Department of Economics

Publication Date

2000

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

33

Abstract

We first review the literature pertaining to the protection of the modem sector in developing countries (DCs). We then discuss the nexuses between protection, economic dualism, and optimal environmental policy in DCs. Next, in the theoretical part of the paper, we construct a dynamic model of the environmental policy formulation process in a stylized DC in which there is a balance of trade deficit, and a tariff that protects the modem-also the import competing and the polluting-sector. 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 course of action. The taxes are characterized, the dependence of these taxes on the extant tariff is studied, and the conditions which call for an activist policy, irrespective of the length of time to which the government can commit to its announced policy, are specified. Our analysis shows that the dynamic inconsistency of some optimal programs and the existence of the tariff can-either singly or collectively-prevent the DC government from attaining its employment and environmental goals.

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