A circular economy with tax policy: Using collection channels and returns to mitigate distortions in steel production and recycling.

The purpose of this research is to show how taxation of intermediate items produced from virgin and recycled materials negatively impacts closed-loop supply chain (CLSC) results (labor, capital, returns, outputs, prices, profits, and dead-weight-loss). It offers remedies to alleviate tax inefficiencies. After formulating upstream and downstream production functions and recycling process, a Stackelberg game framework is analytically solved and data from steel industry and automobile stimulus program in the US are used to obtain numerical results. The results show that an optimum collection channel along with endogenous consumer return behavior can improve outcomes and reduce inefficiencies stemming from output taxation. The principal policy implication is that American, Chinese, Canadian, and German governments' tax incentive programs applied to items produced from recyclables are a sound strategy in the way of spurring their circular economies, improving environmental sustainability, and reducing economic loss. [Display omitted] • Legislators aim to reduce environmental impact of used products and propel sustainable business. • However, governments interventions can distort circular economy outcomes. • This paper proposes remedies to reduce economic and environmental distortions. • The remedies include optimal collection channel and incentive-responsive return program. • The paper quantifies the outcomes in the steel industry. [ABSTRACT FROM AUTHOR]