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Carbon emission control, tariff-carbon tax reform and intersectoral migration in the presence of international capital inflows

Author

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  • Chen, Tai-Liang
  • Yang, Mingjie
  • Zou, Yuxiang

Abstract

As highlighted by the World Bank (2023), multinational enterprises (MNEs) can provide both a fundamental risk to and an opportunity for climate change mitigation. It is critical for policymakers to consider policies involving MNEs for both trade openness and carbon emission controls. This paper employs a modified version of the urban–rural migration model, incorporating mobile capital and multinational firms, to analyze the policy effects of carbon tax and tariff on urban unemployment and national income. Assuming independent policy implementation, the study finds that increasing the carbon tax on pollution-generating production raises urban unemployment rates, while increasing tariffs reduces them. The intersectoral wage gap is a key determinant of the policy effect on urban unemployment levels. The paper further highlights that the elasticity of factor demand in relation to the carbon tax is crucial for understanding its effects on national income. An increase in carbon tax on dirty factor increases (decreases) the national income if, and only if the dirty factor demand elasticity relating to carbon tax is smaller (larger) than one. Likewise, an import tariff on the importable manufacturing good increases the national income if, and only if, the import elasticity with respect to the tariff is smaller than one. Additionally, a point-by-point tariff-tax reform unambiguously raises urban unemployment rates, though it may reduce unemployment levels under certain conditions. If the import elasticity related to the tariff is significantly high (low), then the policy reform will increase (decrease) national income.

Suggested Citation

  • Chen, Tai-Liang & Yang, Mingjie & Zou, Yuxiang, 2025. "Carbon emission control, tariff-carbon tax reform and intersectoral migration in the presence of international capital inflows," The North American Journal of Economics and Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:ecofin:v:78:y:2025:i:c:s1062940825000749
    DOI: 10.1016/j.najef.2025.102434
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    More about this item

    Keywords

    Intersectoral migration; Multinational firms; Carbon tax; Tariff; Policy reform;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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