We construct a two-country model where pollution from production is transmitted across borders. Pollution abatement is undertaken sequentially by private producers and the public sector. We characterize the Nash optimal levels of the policy instruments in the two countries: emission taxes and...

This paper shows that under imperfect competition the welfare effects of indirect tax harmonization may depend crucially on whether taxws are levied by the destination or the origin principle. In a standard model of imperfect competition, while harmonization always makes at least one country...