Sumeet Gulati

National Treatment and the Optimal Regulation of Environmental Externalities

We analyze the role of National Treatment in the regulation of environmental product standards for an open economy. A social planner uses product standards to control emissions from the consumption of a traded good. We show that whether National Treatment of standards interferes with welfare-maximizing policy depends on the instruments available to the policy maker (consumption or emissions tax) and differences in the cost of complying with the standard. We also highlight the asymmetric incidence of the domestic and import product standard when taxes are suboptimal. This asymmetric incidence can also cause welfare-maximizing policy to violate National Treatment.

Estimating Export Response in Canadian Provinces to the US-Canada Softwood Lumber Agreement

We estimate the degree of trade diversion from provinces named under the Softwood Lumber Agreement (SLA) to provinces not named. Our regression results indicate that the SLA had a significant impact on the exports of non-named SLA provinces. Controlling for other factors, the SLA by itself would have increased exports from these provinces four times. The corresponding effect for the provinces named in the SLA is estimated at minus 5 percent. This decrease is not, however, statistically significant.

Frugal Cars or Frugal Drivers? How Carbon and Fuel Taxes Influence the Choice and Use of Cars

British Columbia’s carbon tax was introduced in 2008 and reached its current level of

Free trade and the greening of domestic industry

30 per tonne of carbon dioxide in 2012. Per-capita gasoline demand in B.C. Has decreased by about 15% between 2007 and 2014. Is this decline attributable to BC’s carbon tax and other fuel taxes? This paper assesses the empirical evidence and finds that higher taxes reduce gasoline consumption over time. We also find evidence of carbon leakage, particularly during the 2010-14 period of high cross-border travel due to the strong Canadian Dollar. While the intensive margin of adjustment (car use) may be subject to highly volatile gasoline prices and exchange rates, the extensive margin of adjustment (car purchases) is also influenced by increasing taxes. We find conclusive evidence that higher fuel taxes and BC’s carbon tax are shifting car purchases towards higher fuel efficiency. A counterfactual simulation suggests that without BC’s carbon tax fuel demand per capita would be 7% higher, and the average vehicle’s fuel efficiency would be 4% lower.

How Standards Drive Taxes: The Political Economy of Tailpipe Pollution

In this paper we present an example where a domestic import-competing industry can benefit from a pollution tax borne by its consumers. We show that this pollution tax can be similar to a traditional trade barrier (such as a tariff) and can raise the price received by the domestic industry. Given an open economy, we highlight conditions under which domestic producers prefer a higher consumption-based pollution tax than is socially optimal. In contrast, when the economy is closed, we find that producers prefer a pollution tax that is lower than socially optimal. Domestic producers turn ‘green’ only when faced with import competition.

Who Loses when Prices are Negotiated? An Analysis of the New Car Market†

Abstract To control tailpipe pollution, governments often use environmental product standards and consumption taxes in conjunction (for example, the use of fuel economy standards and gasoline taxes to restrict automobile pollution in the US). Further, the choice of standards and consumption taxes is often independently influenced by special interests. For example, domestic producers have the incentive to influence environmental product standards, and likewise, domestic consumers have the incentive to influence the choice of the consumption tax. In this paper we explore the political link between environmental standards and consumption taxes in the presence of independent special interests. We find that despite the independence of special interests, the political outcome is inextricably linked. This political link is different from the welfare maximizing second-best link usually expected between two related policies, and is crucial in correctly anticipating policy outcomes. Specifically, we find that the governments choice of an environmental standard influences political incentives in the choice of the consumption tax. As the environmental standard falls, a higher demand for the environmentally damaging product develops. This higher demand increases the incentives for consumers to lobby for lower consumption tax. Under certain conditions, this political link is large enough to result in a complementary relationship between the two policies in equilibrium. The complementary relationship implies that a lower standard results in a lower consumption tax and vice versa when the standard is higher.

Political Economy and the Interaction Between International Trade and Environmental Policies

We establish that there are large and persistent differences in final transaction prices for identical new cars, and that demographic characteristics explain at least 20% of the observed variation. Older consumers perform progressively worse in negotiations, and the age premium is greater for women than for men. Our results suggest that the complex nature of vehicle transactions leads to price dispersion in this market, and that the worst performing groups—older women—have the lowest rates of market participation. We conjecture that the results are driven by the sharp increases in womens education and labor force participation in recent decades.

Who Loses when Prices are Negotiated? An Analysis of the New Car Market: WHO LOSES WHEN PRICES ARE NEGOTIATED?

What role does politics play in shaping the effect of international trade on the environment? In this article, we investigate the following questions: Under pressure from local industry, do governments ignore environmental concerns to remain globally competitive? Or do governments cloak protectionism as new and more stringent environmental policy? Does globalization allow lobbies to form more readily and weaken environmental policy? Or does voter economic interest determine environmental policy in an open economy? Our aim is to provide a simple narrative that synthesizes the main political economy insights in the economic literature of trade and the environment.

Green Drivers or Free Riders? An Analysis of Tax Rebates for Hybrid Vehicles

We establish that there are large and persistent differences in final transaction prices for identical new cars, and that demographic characteristics explain at least 20% of the observed variation. Older consumers perform progressively worse in negotiations, and the age premium is greater for women than for men. Our results suggest that the complex nature of vehicle transactions leads to price dispersion in this market, and that the worst performing groups—older women—have the lowest rates of market participation. We conjecture that the results are driven by the sharp increases in womens education and labor force participation in recent decades.