In the past, issues related to the environmental taxes and firm behaviors have been widely discussed. In this article, we attempt to combine the topics related to environmental taxes and firm’s behaviors, discuss the pollutants discharge by firms during the production process. Under the policy measures of government environmental taxation, the firm’s investment and usage of pollution abatement facilities, we divide the firms’ behaviors into cooperation and non-cooperation to discuss firm’s pollution abatement policies and impact on social welfare.
The major finding of this paper is that environmental tax increase will lead to an increase in price and pollution abatement ratio, hence a reduction in firms’ profits and outputs; Higher investment in firms pollution abatement facilities lead to increase in social welfare; Higher degree of environmental damage and environmental tax rate reduce social welfare; When the two firms cooperatively use the pollution abatement facilities, each firm can earn more profit, produce more output, acquire lower price, and emit less pollutants than those of non-cooperatively. The increase of facilities spillover effect may expand the difference of profit, output, and pollution abatement ratio, but shrink the difference of price.
Therefore, the environmental policies formulated by the government can improve environmental pollution and social welfare; whereas a reduction in environmental damage can increase profits as to whether the firms invest in pollution abatement facilities cooperatively or non-cooperatively.
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