Strategic pollution control and capital tax competition |
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Affiliation: | 1. Department of Economics, University of Hagen, Universitätsstr. 41, 58097 Hagen, Germany;2. Department of Economics, University of Siegen, Unteres Schloss 3, 57072 Siegen, Germany;1. Division of Economics and Business, Colorado School of Mines, Golden, CO 80401, United States;2. Department of Economics, University of Colorado Boulder, Boulder, CO 80309, United States;1. The World Bank, United States;2. Georgetown University, United States |
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Abstract: | In an analytical model of symmetric countries with mobile capital and local or transboundary pollution we investigate whether competition in emissions taxes (or emissions caps) and capital taxes leads to efficient outcomes when governments act strategically. When they have capital taxes and emissions caps at their disposal, they refrain from taxing capital and set their caps inefficiently lax [efficient] for transboundary [local] pollution. When they have the option to tax capital and emissions, capital is subsidized [untaxed] and emissions taxes are inefficiently low [efficient] for transboundary [local] pollution. In case of transboundary pollution emissions caps are Pareto-superior to emissions taxes. That holds regardless of whether the environmental policy is applied as stand-alone policy or combined with capital tax competition. |
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Keywords: | Decentralized policymaking Capital tax Emissions tax Emissions cap Pollution H23 H71 Q58 |
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