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Chasing the Smokestack: Strategic Policymaking With Multiple Instruments

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  • Per G. Fredriksson
  • John A. List
  • Daniel L. Millimet

Abstract

Empirical evidence suggesting that a considerable amount of horizontal strategic interaction exists amongst governments is important in light of recent devolutionary trends of many important public programs. The empirical approach in these studies typically relies on estimating reaction functions in a uni-dimensional policy framework, where a nonzero slope estimate is interpreted as evidence in support of strategic interactions. While this framework is a useful representation within certain contexts, it is potentially too restrictive; for example, in models of resource competition, localities may use multiple instruments in their recruiting pursuits, leading to potential strategic interactions across policy instruments. In this study, we first develop a simple theoretic construct that includes resource competition in a world of three-dimensional policy choice. The model suggests that while a zero-sloped reaction function may exist for any particular policy, this does not necessarily imply the absence of strategic interactions. We examine the implications of the model empirically using US state-level panel data over the period 1977-1994. The results suggest that important cross-policy strategic interactions exist, lending support in favor of the multi-dimensional framework, and indicate that uni-dimensional frameworks may present lower bound estimates of the degree of strategic interaction.

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  • Per G. Fredriksson & John A. List & Daniel L. Millimet, 2003. "Chasing the Smokestack: Strategic Policymaking With Multiple Instruments," NBER Working Papers 9801, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9801
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    Cited by:

    1. Denis Claude & Charles Figuières & Mabel Tidball, 2012. "Regulation of Investments in Infrastructure: The Interplay between Strategic Behaviors and Initial Endowments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(1), pages 35-66, February.
    2. Ronald Davies & Helen Naughton, 2014. "Cooperation in environmental policy: a spatial approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(5), pages 923-954, October.
    3. Millimet, Daniel L. & Rangaprasad, Vasudha, 2007. "Strategic competition amongst public schools," Regional Science and Urban Economics, Elsevier, vol. 37(2), pages 199-219, March.
    4. Andreas Wagener, 2013. "Tax Competition, Relative Performance, And Policy Imitation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1251-1264, November.
    5. Gebremeskel Gebremariam & Tesfa Gebremedhin & Peter Schaeffer, 2012. "County-level determinants of local public services in Appalachia: a multivariate spatial autoregressive model approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 49(1), pages 175-190, August.
    6. Hansjörg Blöchliger & José Maria Pinero Campos, 2011. "Tax Competition Between Sub-Central Governments," OECD Economics Department Working Papers 872, OECD Publishing.
    7. Edmark, Karin, 2007. "Strategic competition in Swedish local spending on childcare, schooling and care for the elderly," Working Paper Series 2007:22, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    8. Bert Saveyn, 2013. "On NIMBY and commuting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 293-311, April.
    9. BRECHET, Thierry & PERALTA, Susana, 2012. "Markets for tradable emission permits with fiscal competition," CORE Discussion Papers 2012054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    11. Baomin Dong & Jiong Gong & Xin Zhao, 2012. "FDI and environmental regulation: pollution haven or a race to the top?," Journal of Regulatory Economics, Springer, vol. 41(2), pages 216-237, April.
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    16. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
    17. José Durán-Cabré & Alejandro Esteller-Moré & Luca Salvadori, 2015. "Empirical evidence on horizontal competition in tax enforcement," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 834-860, October.
    18. Yu, Jihai & Zhou, Li-An & Zhu, Guozhong, 2016. "Strategic interaction in political competition: Evidence from spatial effects across Chinese cities," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 23-37.
    19. Kellenberg, Derek K., 2009. "An empirical investigation of the pollution haven effect with strategic environment and trade policy," Journal of International Economics, Elsevier, vol. 78(2), pages 242-255, July.
    20. Lovely, Mary & Popp, David, 2011. "Trade, technology, and the environment: Does access to technology promote environmental regulation?," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 16-35, January.
    21. Fredriksson, Per G. & Matschke, Xenia & Minier, Jenny, 2010. "Environmental policy in majoritarian systems," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 177-191, March.
    22. Brian C. Hill, 2008. "Agglomerations and Strategic Tax Competition," Public Finance Review, , vol. 36(6), pages 651-677, November.
    23. Maarten Allers & J. Elhorst, 2005. "Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 493-513, August.
    24. Xu (Susan) Tang, 2017. "Competition or Coordination: Strategic Environmental Policymaking Across OECD Countries," 2017 Papers pta721, Job Market Papers.

    More about this item

    JEL classification:

    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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