Foreign Direct Investment and the Optimal Environmental Tax of the Host Country

The purpose of this project is to analyze the optimal environmental tax of a host country when facing a multinational firm who may potentially invest in the host country. Due to the non-discriminatory and non-negative properties of the environmental tax, it is difficult for the host government to decide the optimal environmental tax level. In this project, the objective of the environmental tax is not only to correct the pollution externality but also serve as an instrument to attract or deter foreign direct investment. In addition, how do the host market structure, green corporate social responsibility, and pollution abatement affect host government’s optimal environmental tax will also be studied. Finally, other possible environmental policy instrument will be taken into account.