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International Environmental Agreements, Fiscal Federalism, and Constitutional Design

Author

Listed:
  • Wolfgang Buchholz

    () (Department of Economics, University of Regensburg)

  • Alexander Haupt

    () (School of Management (Plymouth Business School))

  • Wolfgang Peters

    () (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder))

Abstract

In this paper, we analyse how the prospect of international negotiations over transboundary pollution shapes intra-country transfer schemes when the governments of the countries' polluting regions are in charge of environmental policy and negotiations. Federal governments can implement compensation payments between domestic regions and matching grants prior to the international negotiations between the polluting regions. The subgame-perfect transfer schemes fail to fully internalise the environmental externality, leading to an inefficient international environmental agreement. As the international spillover increases, the intra-country compensation rates increase, while the matching rates decline, distorting the incentives for the regional governments in opposing directions. We also show that decentralisation of environmental decision making can arise endogenously.

Suggested Citation

  • Wolfgang Buchholz & Alexander Haupt & Wolfgang Peters, 2012. "International Environmental Agreements, Fiscal Federalism, and Constitutional Design," Discussion Paper Series RECAP15 002, RECAP15, European University Viadrina, Frankfurt (Oder).
  • Handle: RePEc:euv:dpaper:002
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    References listed on IDEAS

    as
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    5. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
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    More about this item

    Keywords

    Fiscal federalism; transboundary pollution; international environmental agreement; constitutional design; matching grants;

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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