In a bilateral trade framework, we examine the impact of tariff reduction on the optimal pollution tax and social welfare when pollution is transboundary. Strategic considerations lead countries to distort their pollution tax in the non-cooperative equilibrium. Trade liberalization changes the...

We examine the impact of freer trade on equilibrium pollution tax and welfare when markets are imperfectly competitive and pollution is transboundary. In the symmetric case, bilateral tariff reduction (i) strengthens environmental protection if and only if pollution is sufficiently harmful, and...