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

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  • Valeska Groenert
  • Benjamin Zissimos

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 competition. 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.

Suggested Citation

  • Valeska Groenert & Benjamin Zissimos, 2011. "Developing Country Second-Mover Advantage in Competition over Environmental Standards and Taxes," CESifo Working Paper Series 3686, CESifo.
  • Handle: RePEc:ces:ceswps:_3686
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    References listed on IDEAS

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    Cited by:

    1. Noha Elboghdadly & Michael Finus, 2020. "Strategic Climate Policies with Endogenous Plant Location: The Role of Border Carbon Adjustments," Graz Economics Papers 2020-07, University of Graz, Department of Economics.

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    More about this item

    Keywords

    environmental standards; fiscal competition; second-mover advantage; tax competition.;
    All these keywords.

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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