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The Political Economy of Environmental Regulations and Industry Compensation

Author

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  • Stoschek, Barbara

Abstract

This paper uses a political-economy framework to analyze what consequences the exogenous introduction of a quantitative restriction on total emissions in a small open economy has on the stringency of domestic trade policy. The question is whether and to what extent the government, if it takes different lobby groups´ interests into consideration, has an incentive to compensate the polluting industry for stricter environmental regulations by granting higher protection to it. It turns out that the government will indeed tend to increase subsidization of the industry affected by environmental regulation. This compensation will even be more than complete as long as environmental interests are taken into account. Hence, contrary to what might be expected, a net benefit for the polluting sector arises from environmental restrictions.

Suggested Citation

  • Stoschek, Barbara, 2007. "The Political Economy of Environmental Regulations and Industry Compensation," Economics Working Papers 2007-13, Christian-Albrechts-University of Kiel, Department of Economics.
  • Handle: RePEc:zbw:cauewp:5612
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    File URL: https://www.econstor.eu/bitstream/10419/22029/1/EWP-2007-13.pdf
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    References listed on IDEAS

    as
    1. Arik Levinson & M. Scott Taylor, 2008. "Unmasking The Pollution Haven Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, February.
    2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    3. Rogge, Karoline S. & Schleich, Joachim & Betz, Regina, 2006. "An early assessment of national allocation plans for phase 2 of EU emission trading," Working Papers "Sustainability and Innovation" S1/2006, Fraunhofer Institute for Systems and Innovation Research (ISI).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Environmental Regulations; International Competitiveness; Political Economy; Trade Policy;

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • F18 - International Economics - - Trade - - - Trade and Environment

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