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Self-Enforcing International Agreements and Domestic Policy Credibility

  • Paola Conconi
  • Carlo Perroni

We explore the relationship between international policy coordination and domestic policy credibility when both must be self-supporting. Our arguments are presented in the context of a two-country, two-period model of dynamic emission abatement with transboundary pollution, where government policies suffer from a time-consistency problem. In the absence of repeated interaction, any form of coordination - between governments, and between governments and their respective private sectors - improves policy making. Nevertheless, under repeated interaction international policy spillovers can make it possible to overcome the domestic credibility problem; and, conversely, the inability to precommit to policy domestically can help support international policy cooperation.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-07/cesifo_wp988.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 988.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_988
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  1. James M. Poterba, 1991. "Tax Policy to Combat Global Warming: On Designing a Carbon Tax," NBER Working Papers 3649, National Bureau of Economic Research, Inc.
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  8. Stokey, Nancy L, 1989. "Reputation and Time Consistency," American Economic Review, American Economic Association, vol. 79(2), pages 134-39, May.
  9. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
  10. Matsuyama, Kiminori, 1990. "Perfect Equilibria in a Trade Liberalization Game," American Economic Review, American Economic Association, vol. 80(3), pages 480-92, June.
  11. Brunnetti, Aymo & Kisunko, Gregory & Weder, Beatrice, 1997. "Credibility of rules and economic growth : evidence from a worldwide survey of the private sector," Policy Research Working Paper Series 1760, The World Bank.
  12. Magnus Lodefalk & John Whalley, 2002. "Reviewing Proposals for a World Environmental Organisation," The World Economy, Wiley Blackwell, vol. 25(5), pages 601-617, 05.
  13. Laffont, J.J. & Tirole, J., 1995. "Pollution Permits and Environmental Innovation," Papers 95.396, Toulouse - GREMAQ.
  14. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  15. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.
  16. Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
  17. Pearce, David & Stacchetti, Ennio, 1997. "Time Consistent Taxation by a Government with Redistributive Goals," Journal of Economic Theory, Elsevier, vol. 72(2), pages 282-305, February.
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