Abstract: In order to study the impact of government's environmental taxation and recycling subsidy on manufacturers' and retailer's decision-making under the constraints of manufacturers' capacity constraints, and provide advice for government intervention policies, a closed-loop supply chain model consisting of a manufacturer and a retailer was constructed. Using the Stakelberg game and the inverse induction method to solve the model, it is found that when the government imposes a certain level of environmental taxation on the manufacturer, the manufacturer can fully fulfill the environmental responsibility, but it will cause losses of economic benefits and recycling quantity of the manufacturer and the supply chain, while the government's recycling subsidies can make up for these losses. In addition, the increase in recycling subsidies will have negative impact on the production and sales of new products. At last, the increase in the remanufacturing capacity factor will have a positive impact on the production and sales of new products, but meanwhile will have an adverse effect on that of remanufactured products.

Key words: closed-loop supply chain, environmental taxation, dual intervention, capacity constraint, Stackelberg game