Environmental Taxes and First-Mover Advantages
AbstractThis paper studies whether governments prefer to be leaders or followers in environmental policies. To analyze this question I assume transboundary pollution and two countries that have to decide whether to set environmental taxes sequentially or simultaneously. When taxes are set sequentially an effect, denoted as the sequential setting effect, arises that raises the equilibrium taxes. I show that whether governments prefer to be leaders or followers in taxes depends on the degree to which environmental pollution spills over to trading partners. When this overspill is low enough, taxes are strategic complements and both the leader and the follower obtain greater welfare than under a simultaneous tax setting. However, the leader country obtains greater welfare than the follower. In this case, governments set taxes sequentially. When the degree to which environmental pollution spills over to trading partners is high enough, taxes are strategic substitutes and governments set taxes simultaneously. In this case, each government wants to avoid becoming the follower in taxes. Copyright Springer Science+Business Media, Inc. 2006
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Bibliographic InfoArticle provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.
Volume (Year): 35 (2006)
Issue (Month): 1 (September)
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Web page: http://www.springerlink.com/link.asp?id=100263
duopoly; environmental taxes; international trade; transboundary pollution; L13; Q28;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
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