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Redealing the Cards: How the Presence of an Eco-Industry Modifies the Political Economy of Environmental Policies

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Author Info
Joan Canton (GREQAM, Université de la Méditerranée)

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Abstract

An incumbent government maximizes its chances of being reelected. Its objective function encompasses both social welfare and political contributions. Its only instrument is a pollution tax. In an open-economy context, we introduce an eco-industry in addition to lobbies of polluting firms and environmentalists. Not only does the eco-industry lobby add a new political contribution toward a higher environmental tax, it also modifies the incentives of the usual lobbies. When the foreign environmental policy is constant, environmentalists can be in favor of a decrease in the local tax in order to reduce foreign pollution. It could also be in the interest of a vertical industrial pressure group to lobby toward more stringent environmental policy. In general, the impact of lobbying activities on the politically optimal tax is ambiguous as pressure groups push in different directions.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.25.

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Date of creation: Feb 2007
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Handle: RePEc:fem:femwpa:2007.25

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Related research
Keywords: Eco-Industry Environmental Taxation Lobbies Political Economy

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Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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  3. Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July. [Downloadable!] (restricted)
  4. Alain-Désiré Nimubona & Bernard Sinclair-Desgagné, 2005. "The Pigouvian Tax Rule in the Presence of an Eco-Industry," Post-Print hal-00243020_v1, HAL. [Downloadable!]
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  8. Maia David & Bernard Sinclair-Desgagné, 2004. "Environmental Regulation and the Eco-industry," CIRANO Working Papers 2004s-42, CIRANO. [Downloadable!]
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  9. Joan Canton, 2007. "Environmental Taxation and International Eco-Industries," Working Papers 2007.26, Fondazione Eni Enrico Mattei. [Downloadable!]
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  13. Greaker, Mads, 2006. "Spillovers in the development of new pollution abatement technology: A new look at the Porter-hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 52(1), pages 411-420, July. [Downloadable!] (restricted)
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  15. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-69, August.
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