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Is There an Environmental Race to the Bottom in an Endogenous Growth Model of Interjurisdictional Competition?

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  • Hwang, Sanghyun

Abstract

This paper explores the impact of increasing capital mobility on regional growth and environment. I develop an endogenous growth model in which each local government competes against the others to induce mobile stock of capital into its region. Then I show that an increase in capital mobility generates “tax importing” due to which each locality experiences a higher growth rate and more degraded environment. That is, the increasing mobility dampens the capital tax and transfers the burden of pollution abatement to the locality. This finding supports the hypothesis of “race to the bottom” in environmental standards. Identifying a reduction in overall welfare of residents, I consider two alternative federal interventions in the model: uniform environmental standard and requirement of lump sum transfer (or tax). Both of these federal instruments enhance the residentsʼ welfare.

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  • Hwang, Sanghyun, 2022. "Is There an Environmental Race to the Bottom in an Endogenous Growth Model of Interjurisdictional Competition?," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 63(1), pages 24-50, June.
    • Handle: RePEc:hit:hitjec:v:63:y:2022:i:1:p:24-50
    DOI: 10.15057/hje.2022002
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    More about this item

    Keywords

    Endogenous Growth Model; Interjurisdictional Competition; Environmental Race to the Bottom;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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