Second Best Environmental Policies under Uncertainty

We construct a strategic trade model of an international duopoly, whereby production by exporting firms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their firm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and the damage caused from pollution. Under these modes of uncertainty we derive sufficient conditions under which the governments optimally choose an emissions tax over an emissions standard.Strategic Environmental Policy, Pollution, Choice of Policy Instrument, Uncertainty

Migration, Tied Foreign Aid and the Welfare State

In this paper we highlight aspects related to the links between international migration, foreign tied aid and the welfare state. We model migration as a costly movement from an aid-recipient developing country with low income, poor infrastructure, and no welfare system, towards a rich donor, developed country with a well-developed welfare system. Within this model we find, among other things, that the best response of the developed donor country is to increase aid as the co-financing rate by the recipient country increases. When the immigration cost decreases, e.g. due to greater economic integration between the two countries, it is beneficial for the donor country to increase aid.migration, tied foreign aid, welfare state

Tax Competition, Capital Mobility and Public Good Provision Within a Trading Block

We construct a general equilibrium model of a two-country trading block where governments through tax policies attract mobile capital, and provide an imported public consumption good. At Nash equilibrium, when the public good is under-provided, (i) a country with a large GDP, has a large Nash equilibrium income tax rate, (ii) if initially the existing foreign capital in the country is zero or small, then the country with a large population or high individual marginal willingness to pay for the public good has a large Nash equilibrium income tax rate. When the two countries act cooperatively, then for each country, the cooperative optimal income tax rate is positive, and if they are identical then the cooperative income tax rate is greater than the Nash. When the two countries are different, then it is possible that the cooperative income tax rate is less than the Nash.Nash and cooperative income taxes,capital mobility, public goods

Tradable Permits vs Ecological Dumping

In this paper we examine an alternative policy scenario, where governments allow polluting Ã??rms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting Ã??rms and countries since the prisonersÃ??dilemma is moderated.Strategic environmental policy, Tradable permits, Race to the top

Second Best Environemntal Policies Under Uncertainty

We construct a strategic trade model of an international duopoly, whereby production by exporting frms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their .rm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and the damage caused from pollution. Under these modes of uncertainty we derive su�¢ cient conditions under which the governments optimally choose an emissions tax over an emissions standard.

Tradable Permits vs Ecological Dumping

In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.Strategic Environmental Policy, Tradable Permits, Race to the top

Integrated Reforms of Indirect Taxes in the Presence of Pollution

The literature on indirect tax reforms in pollution-ridden economies is quite limited. This paper, using a model of a small open economy with production and consumption generated pollution, considers the welfare implications of tax reforms within an integrated structure of consumption and production taxes. Specifically, both in the presence and absence of a binding government revenue constraint, we derive sufficient conditions for welfare improvement in the case where we implement (i) reforms in either production or consumption taxes, (ii) reforms in both consumption and production taxes and (iii) uniform changes in consumption taxes.indirect tax reforms, production and consumption generated pollution, welfare, government tax revenues

Optimal Tax Policies under Two-Stage Clean-Up, Cross-Border Pollution and Capital Mobility

The literature has identified cross-border pollution, capital mobility and two-stage clean-up as the key features in the «trade Vs environment» debate, yet no study examines all three simultaneously. We build a two country trading block model with cross-border pollution and free movements of goods and capital between the two countries. Pollution reduces welfare and there is simultaneous private and public pollution abatement. Public pollution abatement is financed with the use of lump-sum and pollution tax revenue. We, also, examine how cross-border pollution and capital mobility affect each country’s optimal tax policies. Finally, we examine how the existence of capital mobility alters the effectiveness of pollution taxes on net pollution.Optimal Taxes, Two-stage Clean-Up. Cross-Border Pollution, Capital Mobility.

Optimal Tax Policies with Private-Public Clean-Up, Cross-Border Pollution and Capital Mobility

This paper builds a model of a region with two non-identical countries, cross-border pollution and free movements of goods and capital within the region. Pollution reduces welfare and there is simultaneous private and public pollution abatement. Public pollution abatement is financed with the use of lump-sum and pollution tax revenue. The introduction of public pollution abatement enables us to derive the optimal pollution taxes in terms of the marginal cost of public pollution abatement. We derive and compare for each country the Nash and cooperative lump-sum and pollution taxes and examine how cross-border pollution and capital mobility affect them. Finally, we examine the impact of capital mobility on the effectiveness of pollution taxes on net pollution.optimal taxes, public pollution abatement, cross-border pollution, capital mobility

Can Cross-Border Pollution Reduce Pollution?

We develop a North-South model of foreign aid and cross-border pollution resulting from production activities in the recipient country. There is both private and public abatement of pollution, the latter being financed through emissions tax revenue and foreign aid. We characterise a Nash equilibrium where the donor country chooses the amount of aid, and the recipient chooses the fraction of aid allocated to pollution abatement and/or the emission tax rate. At this equilibrium, an increase in the donor's perceived rate of cross-border pollution reduces net emission levels.Cross-border pollution, pollution abatement, foreign aid