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The political economy of environmental regulations and industry compensation

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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," Center for European, Governance and Economic Development Research Discussion Papers 65, University of Goettingen, Department of Economics.
  • Handle: RePEc:zbw:cegedp:65
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    References listed on IDEAS

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    More about this item

    Keywords

    environmental regulations; international competitiveness; political;

    JEL classification:

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

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