IDEAS home Printed from https://ideas.repec.org/a/spr/sochwe/v65y2025i1d10.1007_s00355-024-01565-8.html
   My bibliography  Save this article

Environmental tax competition and welfare: the good news about lobbies

Author

Listed:
  • Philippe Bontems

    (INRAE, University of Toulouse Capitole)

  • Guillaume Cheikbossian

    (CEE-M (Université de Montpellier, CNRS, INRAE, Institut Agro.))

  • Houda Hafidi

    (Aix Marseille Univ)

Abstract

This paper focuses on the welfare effects of domestic and international lobbying in the context of two countries linked by both trade and pollution. We consider a reciprocal-markets model where, in each country, a domestic firm produces a polluting good, that can result in a cross-national environmental externality, and competes in quantities in each market with a foreign firm. Each government independently sets a pollution tax under political pressure from green and industrial lobbies à la Grossman and Helpman (Am Econ Rev 84(4):833–850, 1994). Our results mainly show that political pressure from domestic and/or international lobbies can help mitigate tax competition between the two countries, resulting in an improvement in social welfare. In fact, lobbying acts much like a strategic delegation device by changing the social welfare weights in the objective function of each government. The (potential) welfare-improving effect of political pressure depends on the relative strengths of the lobbies and on the nature of the strategic interactions in taxes.

Suggested Citation

  • Philippe Bontems & Guillaume Cheikbossian & Houda Hafidi, 2025. "Environmental tax competition and welfare: the good news about lobbies," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 65(1), pages 27-68, August.
    • Handle: RePEc:spr:sochwe:v:65:y:2025:i:1:d:10.1007_s00355-024-01565-8
    DOI: 10.1007/s00355-024-01565-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00355-024-01565-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00355-024-01565-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(1), pages 1-31.
    2. Keisuke Hattori, 2010. "Strategic Voting for Noncooperative Environmental Policies in Open Economies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(4), pages 459-474, August.
    3. Damania, Richard & Fredriksson, Per G. & List, John A., 2004. "The multiplier effect of globalization," Economics Letters, Elsevier, vol. 83(3), pages 285-292, June.
    4. Roelfsema, Hein, 2007. "Strategic delegation of environmental policy making," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 270-275, March.
    5. Medrano, Luis Angel & Vives, Xavier, 2001. "Strategic Behavior and Price Discovery," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 221-248, Summer.
    6. Lai, Yu-Bong & Hu, Chia-Hsien, 2008. "Trade agreements, domestic environmental regulation, and transboundary pollution," Resource and Energy Economics, Elsevier, vol. 30(2), pages 209-228, May.
    7. Guillaume Cheikbossian, 2016. "The political economy of (De)centralization with complementary public goods," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 47(2), pages 315-348, August.
    8. Toke S. Aidt & Uk Hwang, 2014. "To Ban or Not to Ban: Foreign Lobbying and Cross-National Externalities," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 272-297, February.
    9. Brian R. Copeland & M. Scott Taylor, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 755-787.
    10. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
    11. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
    12. Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
    13. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-840, Supplemen.
    14. Toke S. Aidt & Facundo Albornoz & Esther Hauk, 2021. "Foreign Influence and Domestic Policy," Journal of Economic Literature, American Economic Association, vol. 59(2), pages 426-487, June.
    15. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455, Elsevier.
    16. Yann Duval & Stephen Hamilton, 2002. "Strategic Environmental Policy and International Trade in Asymmetric Oligopoly Markets," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(3), pages 259-271, May.
    17. Walz, Uwe & Wellisch, Dietmar, 1997. "Is free trade in the interest of exporting countries when there is ecological dumping?," Journal of Public Economics, Elsevier, vol. 66(2), pages 275-291, November.
    18. Georges Tanguay, 2001. "Strategic Environmental Policies under International Duopolistic Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(5), pages 793-811, November.
    19. Wolfgang Buchholz & Alexander Haupt & Wolfgang Peters, 2005. "International Environmental Agreements and Strategic Voting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 175-195, March.
    20. Conconi, Paola, 2003. "Green lobbies and transboundary pollution in large open economies," Journal of International Economics, Elsevier, vol. 59(2), pages 399-422, March.
    21. Per G. Fredriksson, 1999. "The Political Economy of Trade Liberalization and Environmental Policy," Southern Economic Journal, John Wiley & Sons, vol. 65(3), pages 513-525, January.
    22. Persson, Lars, 2012. "Environmental policy and lobbying in small open economies," Resource and Energy Economics, Elsevier, vol. 34(1), pages 24-35.
    23. Barrett, Scott, 1994. "Strategic environmental policy and intrenational trade," Journal of Public Economics, Elsevier, vol. 54(3), pages 325-338, July.
    24. Brian R. Copeland & M. Scott Taylor, 1995. "Trade and the Environment: A Partial Synthesis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(3), pages 765-771.
    25. Fredriksson, Per G., 1997. "The Political Economy of Pollution Taxes in a Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 44-58, May.
    26. Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 337-388.
    27. Toke S. Aidt & Uk Hwang, 2008. "On the Internalization of Cross-National Externalities through Political Markets: The Case of Labour Standards," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 509-533, September.
    28. Siqueira, Kevin, 2003. "International externalities, strategic interaction, and domestic politics," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 674-691, May.
    29. Odd Rune Straume, 2006. "Product Market Integration and Environmental Policy Coordination in An International Duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(4), pages 535-563, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bontems, Philippe & Cheikbossian, Guillaume & Hafidi, Houda, 2024. "Environmental Tax Competition and Welfare: The Good News about Lobbies," TSE Working Papers 24-1551, Toulouse School of Economics (TSE).
    2. Odd Rune Straume, 2006. "Product Market Integration and Environmental Policy Coordination in An International Duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(4), pages 535-563, August.
    3. Kenji Fujiwara, 2011. "Market Integration and Competition in Environmental and Trade Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(4), pages 561-572, August.
    4. Fünfgelt, Joachim & Schulze, Günther G., 2016. "Endogenous environmental policy for small open economies with transboundary pollution," Economic Modelling, Elsevier, vol. 57(C), pages 294-310.
    5. Geum Soo Kim, 2013. "Lobbies Competition and Bilateral International Environmental Agreements," Korean Economic Review, Korean Economic Association, vol. 29, pages 81-96.
    6. Kenji Fujiwara, 2012. "Market integration, environmental policy, and transboundry pollution from consumption," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(4), pages 603-614, July.
    7. Sturm, Daniel & Ulph, Alistair, 2002. "Environment, trade, political economy and imperfect information: a survey," Discussion Paper Series In Economics And Econometrics 0204, Economics Division, School of Social Sciences, University of Southampton.
    8. Onur A. Koska & Frank Stähler & Onur Yeni, 2020. "Trade and commodity taxes as environmental instruments in an open economy," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(2), pages 333-353, June.
    9. Bhattacharya, Rabindra N. & Pal, Rupayan, 2010. "Environmental standards as strategic outcomes: A simple model," Resource and Energy Economics, Elsevier, vol. 32(3), pages 408-420, August.
    10. Joan Canton, 2009. "Environmentalists' Behaviour and Environmental Policies policies," Working Papers 2009.76, Fondazione Eni Enrico Mattei.
    11. Habla, Wolfgang & Winkler, Ralph, 2013. "Political influence on non-cooperative international climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 219-234.
    12. Ferrara, Ida & Missios, Paul & Murat Yildiz, Halis, 2009. "Trading rules and the environment: Does equal treatment lead to a cleaner world?," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 206-225, September.
    13. Achim Hagen & Juan-Carlos Altamirano-Cabrera & Hans-Peter Weikard, 2021. "National political pressure groups and the stability of international environmental agreements," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 21(3), pages 405-425, September.
    14. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 7-71, March.
    15. Keisuke Kawata & Yasunori Ouchida, 2013. "Offshoring, trade and environmental policies: Effects of transboundary pollution," IDEC DP2 Series 3-8, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
    16. Leo Wangler & Juan-Carlos Altamirano-Cabrera & Hans-Peter Weikard, 2013. "The political economy of international environmental agreements: a survey," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 13(3), pages 387-403, September.
    17. Keisuke Hattori, 2010. "Strategic Voting for Noncooperative Environmental Policies in Open Economies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(4), pages 459-474, August.
    18. McAusland, Carol, 2005. "Harmonizing tailpipe policy in symmetric countries: Improve the environment, improve welfare?," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 229-251, September.
    19. Persson, Lars, 2012. "Environmental policy and lobbying in small open economies," Resource and Energy Economics, Elsevier, vol. 34(1), pages 24-35.
    20. Achim Hagen & Juan-Carlos Altamirano-Cabrera & Hans-Peter Weikard, 2016. "The Influence of Political Pressure Groups on the Stability of International Environmental Agreements," Working Papers V-391-16, University of Oldenburg, Department of Economics, revised Aug 2016.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sochwe:v:65:y:2025:i:1:d:10.1007_s00355-024-01565-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.