According to the pollution haven competitiveness hypothesis more stringent environmental policy adversely affects international competitiveness in a polluting industry. To avert such impacts, Finnish energy intensive firms are entitled to a substantial refund on excise taxes paid on energy use. I explore its impact with firm level data on exports, energy and other firm-specific factors and instrumental variables methodology. Estimation results show little, if any causal impact from the energy tax refund on international competitiveness in terms of exports. The refund does support value creating production in recipient firms, but since exports and employment are virtually unaffected, the refund may filter down to wages or profits, or crowd out domestic competition. The issue has broader relevance particularly to countries in which pressures for fiscal devaluation have accumulated, as in most Eurozone economies.
Elina Berghäll, VATT Institute for Economic Research, Finland
Stream: Economic Sustainability: Environmental Challenges and Economic Growth
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