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Pollution and Capital Tax Competition within a Regional Block

Author

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  • Costas Hadjiyiannis
  • Panos Hatzipanayotou
  • Michael S. Michael

Abstract

The paper examines the interaction among taxes on factors income, environmental quality and welfare. We construct a two-country regional block model with capital mobility and cross-border pollution. Pollution in the two countries is simultaneously abated by the private sector, in response to a pollution tax and by the public sector utilizing income and pollution tax revenue. We demonstrate, among other things, that due to the existence of cross-border pollution in many cases the Nash optimal policy on capital income is a positive tax, even if taxes on the income of immobile factors are chosen optimally. This tax rate increases with the degree of cross-border pollution.

Suggested Citation

  • Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2004. "Pollution and Capital Tax Competition within a Regional Block," CESifo Working Paper Series 1208, CESifo.
    • Handle: RePEc:ces:ceswps:_1208
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    References listed on IDEAS

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    6. Panos Hatzipanayotou & Costas Hadjiyiannis & Michael S. Michael, 2002. "Tax Competition, Capital Mobility, and Public Good Provision Within a Trading Block," Review of International Economics, Wiley Blackwell, vol. 10(3), pages 442-458, August.
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    19. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2002. "Optimal Tax Policies with Private-Public Clean-Up, Cross-Border Pollution and Capital Mobility," CESifo Working Paper Series 822, CESifo.
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    Cited by:

    1. Takumi HAIBARA, 2006. "A Note on Trade Liberalization, Public Abatement and Welfare," GSICS Working Paper Series 7, Graduate School of International Cooperation Studies, Kobe University.
    2. Takumi Haibara, 2009. "Environmental Funds, Public Abatement, and Welfare," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(2), pages 167-177, October.
    3. Takumi HAIBARA, 2006. "Environmental Funds, Public Abatement and Welfare," GSICS Working Paper Series 8, Graduate School of International Cooperation Studies, Kobe University.

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    Keywords

    optimal income taxes; public pollution abatement; cross-border pollution; capital mobility;
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