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Environmental Taxes and First-Mover Advantages

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  • Juan Carlos Bárcena-Ruiz

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Abstract

This 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 Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 35 (2006)
Issue (Month): 1 (September)
Pages: 19-39

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Handle: RePEc:kap:enreec:v:35:y:2006:i:1:p:19-39

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: duopoly; environmental taxes; international trade; transboundary pollution; L13; Q28;

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Citations

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Cited by:
  1. Bárcena-Ruiz, Juan Carlos & Campo, María Luz, 2012. "Partial cross-ownership and strategic environmental policy," Resource and Energy Economics, Elsevier, vol. 34(2), pages 198-210.
  2. Hattori, Keisuke & Kitamura, Takahiro, 2011. "Endogenous Timing in Strategic Environmental Policymaking," MPRA Paper 29337, University Library of Munich, Germany.
  3. Birgit Bednar-Friedl, 2012. "Climate policy targets in emerging and industrialized economies: the influence of technological differences, environmental preferences and propensity to save," Empirica, Springer, vol. 39(2), pages 191-215, May.
  4. MacKenzie, Ian A., 2011. "Tradable permit allocations and sequential choice," Resource and Energy Economics, Elsevier, vol. 33(1), pages 268-278, January.
  5. Myriam Anna Scaringelli, 2011. "Commercio Internazionale E Ambiente: Un’Analisi A Livello Provinciale," Quaderni DSEMS, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia 06-2011, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
  6. Peter Michaelis & Thomas Ziesemer, 2013. "The impact of policy diffusion on optimal emission taxes," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(3), pages 259-270, July.
  7. Zhao, Laijun & Li, Changmin & Huang, Rongbing & Si, Steven & Xue, Jian & Huang, Wei & Hu, Yue, 2013. "Harmonizing model with transfer tax on water pollution across regional boundaries in a China’s lake basin," European Journal of Operational Research, Elsevier, Elsevier, vol. 225(2), pages 377-382.
  8. Peter Michaelis & Thomas Ziesemer, 2012. "The Impact of Policy Diffusion on Optimal Emission Taxes," Discussion Paper Series, Universitaet Augsburg, Institute for Economics 318, Universitaet Augsburg, Institute for Economics.

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