We show that, in competition between a developed country and a developing country over environmental standards and taxes, the developing country may have a 'second-mover advantage.' In our model, firms do not unanimously prefer lower environmental-standard levels. We introduce this feature to an otherwise familiar model of fiscal competition. Three distinct outcomes can be characterized by varying the cost to firms of 'standard mismatch': (1) the outcome may be efficient; (2) the developing country may be a 'pollution haven,' where some firms escape excessively high environmental standards in the developed country; (3) environmental standards may be set excessively high.
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Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number
0909.
Find related papers by JEL classification: H2 - Public Economics - - Taxation, Subsidies, and Revenue H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
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