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Centralized versus Decentralized Taxation of Mobile Polluting Firms

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Abstract

We consider a world in which a mobile polluting firm must locate in one of two regions. The regions differ in two dimensions: their marginal cost of pollution and the production cost of the firm. It is shown that under incomplete information on regional marginal costs of pollution, fiscal competition may lead to the sub-optimal location of the firm. We also show that under incomplete information, a sub-optimal location is less likely under centralized than under decentralized taxation. Nous étudions un monde dans lequel une firme polluante mobile cherche à se localiser dans une de deux régions données. Les régions présentent des différences quant à leur coût marginal des émissions polluantes et quant à leur coût de production. Il est démontré que dans un contexte d'information incomplète sur les coûts marginaux de pollution des régions, la concurrence fiscale peut mener à une localisation non-optimale de la firme. Il est également démontré que la centralisation de la taxation réduit la probabilité d'une localisation non-optimale.

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Bibliographic Info

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 122.

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Length: 16 pages
Date of creation: Oct 2000
Date of revision:
Handle: RePEc:cre:crefwp:122

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Keywords: Fiscal Competition; Location; Pollution;

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References

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  1. Copeland, Brian R & Taylor, M Scott, 1995. "Trade and Transboundary Pollution," American Economic Review, American Economic Association, vol. 85(4), pages 716-37, September.
  2. Copeland, Brian R & Taylor, M Scott, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 755-87, August.
  3. Doyle, Christopher & van Wijnbergen, Sweder, 1984. "Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays," CEPR Discussion Papers 25, C.E.P.R. Discussion Papers.
  4. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  5. Wayne B Gray, 1997. "Manufacturing Plant Location: Does State Pollution Regulation Matter?," Working Papers 97-8, Center for Economic Studies, U.S. Census Bureau.
  6. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-26, September.
  7. Rauscher, Michael, 1994. "Environmental Regulation and the Location of Polluting Industries," CEPR Discussion Papers 1032, C.E.P.R. Discussion Papers.
  8. Rauscher, Michael, 1994. "Environmental regulation and the location of polluting industries," Kiel Working Papers 639, Kiel Institute for the World Economy.
  9. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
  11. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
  12. Hoel, Michael, 1997. " Environmental Policy with Endogenous Plant Locations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 241-59, June.
  13. Karen Palmer & Wallace E. Oates & Paul R. Portney, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-132, Fall.
  14. Dion, Catherine & Lanoie, Paul & Laplante, Benoit, 1998. "Monitoring of Pollution Regulation: Do Local Conditions Matter?," Journal of Regulatory Economics, Springer, vol. 13(1), pages 5-18, January.
  15. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
  16. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
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Cited by:
  1. Marceau, Nicolas, 2008. "La concurrence entre gouvernements est-elle bénéfique?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 84(4), pages 365-390, Décembre.
  2. Jie He & Paul MAKDISSI & Quentin WODON, 2007. "Corruption, Inequality, and Environmental Regulation," Cahiers de recherche 07-13, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  3. Paul Lanoie & Jérôme Moreau & Georges A. Tanguay, 2001. "Environmental Policy, Public Interest and Political Market," CIRANO Working Papers 2001s-37, CIRANO.
  4. Georges A. Tanguay & Paul Lanoie & Jérôme Moreau, 2001. "Environmental Policy, Public Interest and Political Market," Cahiers de recherche 01-01, HEC Montréal, Institut d'économie appliquée.
  5. Georges Tanguay, 2001. "Strategic Environmental Policies under International Duopolistic Competition," International Tax and Public Finance, Springer, vol. 8(5), pages 793-811, November.

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