Environmental and Resource Economics

, Volume 67, Issue 4, pp 701–724

The Spillover Effects of Good Governance in a Tax Competition Framework with a Negative Environmental Externality

Article
  • 209 Downloads

Abstract

We investigate the impact of a political regime shift affecting consumers, business interests and lobby contributions when countries engage in tax competition in capital and a polluting resource. When consumers have more influence than resource owners, the resource tax rate and public spending rise while environmental damages, lobbying contribution, and the capital tax rate fall. This response can spillover to other countries leading to lower welfare. Capital tax harmonization improves welfare of consumers and resource owners. Resource tax harmonization and governance harmonization both reduce the influence of lobbying and improve consumer welfare but resource owners are worse off.

Keywords

Lobbying Environmental damage Tax competition  Spillovers 

JEL Classification

H23 D73 

Supplementary material

10640_2015_9995_MOESM1_ESM.pdf (23 kb)
Supplementary material 1 (pdf 22 KB)

References

  1. Antweiler WBR, Copeland M Scott (2001) Is free trade good for the environment? Am Econ Rev 91(4):877–908CrossRefGoogle Scholar
  2. Arikan G (2004) Fiscal decentralization: A remedy for corruption? Int Tax Public Finance 11(2):175–195CrossRefGoogle Scholar
  3. Atkinson AB, Stiglitz JE (1980) Lectures on public economics. Princeton University Press, PrincetonGoogle Scholar
  4. Brueckner J (2003) Strategic interaction among governments: an overview of empirical studies. Int Reg Sci Rev 26(2):175–188CrossRefGoogle Scholar
  5. Chirinko RS, Wilson DJ (2010) Can lower tax rates be bought? Business rent-seeking and tax competition among U.S. States. Federal Reserve Bank of San Francisco, Working Paper, 2009–29. http://www.frbsf.org/publications/economics/papers/2009/wp09-29bk.pdf
  6. Cole MA (2007) Corruption, income and the environment: an empirical analysis. Ecol Econ 62:637–647CrossRefGoogle Scholar
  7. Conconi P (2003) Green lobbies and transboundary pollution in large open economies. J Int Econ 59:399–422CrossRefGoogle Scholar
  8. Cremer H, Gahvari F (2006) Which border taxes? Origin and destination regimes with fiscal competition in output and emission taxes. J Public Econ 90:2121–2142CrossRefGoogle Scholar
  9. Damania R, Fredriksson PG, List JA (2003) Trade liberalization, corruption, and environmental policy formation: theory and evidence. J Environ Econ Manag 46:490–512CrossRefGoogle Scholar
  10. Damania R, Fredriksson P (2003) Trade policy reform, endogenous lobby group formation, and environmental policy. J Econ Behav Organ 52(1):47–69CrossRefGoogle Scholar
  11. Dixit A, Grossman G, Helpman E (1997) Common agency and coordination: general theory and application to government policy making. J Polit Econ 105:752–769CrossRefGoogle Scholar
  12. Esteller-Moré A, Galmarini U, Rizzo L (2012) Vertical tax competition and consumption externalities in a federation with lobbying. J Public Econ 96:295–305CrossRefGoogle Scholar
  13. European Commission (2010) The Stockholm Programme—an open and secure Europe serving and protecting citizens. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:115:0001:0038:EN:PDF
  14. Finer J (2003) World Bank focused on fighting corruption: graft and bribery, once tolerated, punished by blacklisting. Global Policy Forum Article. https://www.globalpolicy.org/pmscs/30085.html
  15. Genschel P, Schwarz P (2011) Tax competition: a literature review. Socio Econ Rev 9(2):339–370CrossRefGoogle Scholar
  16. Grossman GM, Helpman E (1994) Protection for sale. Am Econ Rev 84(4):833–850Google Scholar
  17. Hultberg PT, Barbier EB (2004) Cross-country policy harmonization with rent-seeking. Contrib Econ Anal Policy 3(2):1–20Google Scholar
  18. Karp L (2011) The environment and trade. Annu Rev Resour Econ 3:397–417CrossRefGoogle Scholar
  19. Larson DF, Nash J (2010) Resource management and the effects of trade on vulnerable places and people: lessons from six case studies. Policy Research Working Paper, 5258. World BankGoogle Scholar
  20. Marceau N, Smart M (2003) Corporate Lobbying and Commitment Failure in Capital Taxation. Am Econ Rev 93(1):241–251Google Scholar
  21. Oates WE (1972) Fiscal federalism. Harcourt Brace Jovanovich, New YorkGoogle Scholar
  22. Oates WE, Schwab R (1988) Economic competition among jurisdictions: Efficiency-enhancing or distortion-inducing? J Public Econ 35:333–354CrossRefGoogle Scholar
  23. Ogawa H, Wildasin D (2009) Think locally act locally: spillovers, spillins, and efficient decentralized policymaking. Am Econ Rev 99(4):1206–1217CrossRefGoogle Scholar
  24. Persson L (2012) Environmental policy and lobbying in small open economies. Resour Energy Econ 34:24–35CrossRefGoogle Scholar
  25. Wildasin DE (1988) Nash equilibria in models of fiscal competition. J Public Econ 35(2):229–240CrossRefGoogle Scholar
  26. Wildasin DE (1989) Interjurisdictional capital mobility: fiscal externality and a corrective subsidy. J Urban Econ 25:193–212CrossRefGoogle Scholar
  27. Wilson JD (1986) A theory of interregional tax competition. J Urban Econ 19(3):296–315CrossRefGoogle Scholar
  28. Wilson JD (1987) Trade, capital mobility, and tax competition. J Polit Econ 95(4):835–856CrossRefGoogle Scholar
  29. Withagen C, Halesma A (2013) Trade competition leading to stricter environmental policy. Int Tax Public Finance 20:434–449CrossRefGoogle Scholar
  30. Zodrow GR, Mieszkowski P (1986) Pigou, Tiebout, property taxation, and the underprovision of local public goods. J Urban Econ 19:356–370CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.School of Economic SciencesWashington State UniversityPullmanUSA

Personalised recommendations