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Developing Country Second-Mover Advantage in Competition over Environmental Standards and Taxes

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  • Valeska Groenert

    () (Universitat Aut�noma de Barcelona)

  • Myrna Wooders

    () (Department of Economics, Vanderbilt University)

  • Ben Zissimos

    () (Department of Economics, Vanderbilt University)

Abstract

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 competi- tion. Four distinct outcomes can be characterized by varying the marginal cost to firms of an environmental externality: (1) the outcome may be efficient; (2) the developing country may be a 'pollution haven;' a place to escape excessively high environmental standards in the developed country; (3) the developing country may 'undercut' the developed country and attract all firms; (4) the developed country may be a pollution haven.

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File URL: http://www.accessecon.com/pubs/VUECON/vu10-w12R.pdf
File Function: Revised version, October 2010
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 1012.

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Date of creation: Oct 2010
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Handle: RePEc:van:wpaper:1012

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Environmental standards; fiscal competition; second mover advantage; tax competition.;

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  1. Josh Ederington, Arik Levinson, and Jenny Minier, 2004. "Trade Liberalization and Pollution Havens," Working Papers gueconwpa~04-04-05, Georgetown University, Department of Economics.
  2. Robin Boadway & Katherine Cuff & Nicolas Marceau, 2004. "Agglomeration Effects and the Competition for Firms," International Tax and Public Finance, Springer, vol. 11(5), pages 623-645, 09.
  3. Levinson, Arik, 1997. "A Note on Environmental Federalism: Interpreting Some Contradictory Results," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 359-366, July.
  4. 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.
  5. Valeska Groenert & Myrna Wooders & Ben Zissimos, 2009. "Developing Country Second-Mover Advantage in Competition Over Standards and Taxes," Vanderbilt University Department of Economics Working Papers 0909, Vanderbilt University Department of Economics.
  6. Justman, Moshe & Thisse, Jacques-François & van Ypersele, Tanguy, 2001. "Taking the Bite Out of Fiscal Competition," CEPR Discussion Papers 3109, C.E.P.R. Discussion Papers.
  7. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
  8. Haufler, Andreas & Wooton, Ian, 1997. "Tax Competition for Foreign Direct Investment," CEPR Discussion Papers 1583, C.E.P.R. Discussion Papers.
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