Biofuel subsidies and international trade

Subhayu Bandyopadhyay*, Sumon Bhaumik, Howard J. Wall

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn-based ethanol, which diverts corn from use as food. In the small-country case, when the tax on crude is not available as a policy option, a second-best biofuel subsidy may or may not be positive. In the large-country case, the twin objectives of pollution reduction and terms-of-trade improvement justify a combination of crude tax and biofuel subsidy for the food exporter. Finally, we show that when both nations engage in biofuel policies, the terms-of-trade effects encourage the Nash equilibrium subsidy to be positive (negative) for the food exporting (importing) nation.

Original languageEnglish
Pages (from-to)181-199
Number of pages19
JournalEconomics and Politics
Issue number2
Early online date21 Feb 2013
Publication statusPublished - 2013

Bibliographical note

This is the pre-peer reviewed version of the following article: Bandyopadhyay, S., Bhaumik, S., & Wall, H. J. (2013). Biofuel subsidies and international trade. Economics and politics, Early view., which has been published in final form at


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