DP785 Green Policies in a Small Open Economy

Author(s): A Lans Bovenberg, Frederick van der Ploeg
Publication Date: May 1993
Keyword(s): Capital, Environmental Externalities, Excess Burden, Natural Resources, Public Abatement Employment, Small Open Economy
JEL(s): E60, H21, H41, Q28
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=785

In this paper we develop techniques for measuring the trade policy equivalent of domestic distortions, using a distance function approach. Our measure, the Trade Restrictiveness Index, is shown to equal the uniform tariff which is welfare-equivalent to a given pattern of domestic taxes and subsidies. We extend the Index to incorporate taxes on non-traded goods and factor markets and illustrate its operationality with an application to liberalization in Mexican agriculture. We conclude that our Index has considerable potential in empirical work and as an aid to trade negotiators.