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

  • Valeska Groenert

    ()

    (Universitat Aut�noma de Barcelona)

  • Myrna Wooders

    ()

    (Department of Economics, Vanderbilt University)

  • Ben Zissimos

    ()

    (Department of Economics, Vanderbilt University)

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 competi- tion. 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.

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File URL: http://www.accessecon.com/pubs/VUECON/vu10-w12R.pdf
File Function: Revised version, October 2010
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 1012.

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Date of creation: Oct 2010
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Handle: RePEc:van:wpaper:1012
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Andreas Haufler & Ian Wooton, . "Country Size and Tax Competition for Foreign Direct Investment," Working Papers 9702, Business School - Economics, University of Glasgow.
  2. Haufler, Andreas & Wooton, Ian, 1997. "Tax Competition for Foreign Direct Investment," CEPR Discussion Papers 1583, C.E.P.R. Discussion Papers.
  3. Valeska Groenert & Myrna Wooders & Ben Zissimos, 2009. "Developing Country Second-Mover Advantage in Competition Over Standards and Taxes," Vanderbilt University Department of Economics Working Papers 0909, Vanderbilt University Department of Economics.
  4. Davies, Ronald B. & Ellis, Christopher J., 2007. "Competition in taxes and performance requirements for foreign direct investment," European Economic Review, Elsevier, vol. 51(6), pages 1423-1442, August.
  5. Justman, Moshe & Thisse, Jacques-Francois & van Ypersele, Tanguy, 2002. "Taking the bite out of fiscal competition," Journal of Urban Economics, Elsevier, vol. 52(2), pages 294-315, September.
  6. Josh Ederington, Arik Levinson, and Jenny Minier, 2004. "Trade Liberalization and Pollution Havens," Working Papers gueconwpa~04-04-05, Georgetown University, Department of Economics.
  7. Robin Boadway & Katherine Cuff & Nicolas Marceau, 2004. "Agglomeration Effects and the Competition for Firms," International Tax and Public Finance, Springer, vol. 11(5), pages 623-645, 09.
  8. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
  9. Levinson, Arik, 1997. "A Note on Environmental Federalism: Interpreting Some Contradictory Results," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 359-366, July.
  10. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
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