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Vertical fiscal externalities and the environment

Author

Listed:
  • Christoph Böhringer

    (Carl von Ossietzky Universität Oldenburg, Institut für Volkswirtschaftslehre & ZenTra)

  • Nicholas Rivers

    (Graduate School of Public and International Affairs and Institute of the Environment, University of Ottawa)

  • Hidemichi Yonezawa

    (University of Ottawa, Institute of the Environment)

Abstract

We show that imposition of a state-level environmental tax in a federation crowds out preexisting federal taxes. We explain how this vertical fiscal externality can lead unilateral statelevel environmental policy to generate a welfare gain in the implementing state, at the expense of other states. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that - as a consequence of vertical fiscal externalities - state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.Length: 47 pages

Suggested Citation

  • Christoph Böhringer & Nicholas Rivers & Hidemichi Yonezawa, 2014. "Vertical fiscal externalities and the environment," ZenTra Working Papers in Transnational Studies 43 / 2014, ZenTra - Center for Transnational Studies.
    • Handle: RePEc:zen:wpaper:43
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    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2528489
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    Cited by:

    1. Coria, Jessica & Hennlock, Magnus & Sterner, Thomas, 2021. "Interjurisdictional externalities, overlapping policies and NOx pollution control in Sweden," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    2. Taran Faehn & Gabriel Bachner & Robert Beach & Jean Chateau & Shinichiro Fujimori & Madanmohan Ghosh & Meriem Hamdi-Cherif & Elisa Lanzi & Sergey Paltsev & Toon Vandyck & Bruno Cunha & Rafael Garaffa , 2020. "Capturing Key Energy and Emission Trends in CGE models: Assessment of Status and Remaining Challenges," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 5(1), pages 196-272, June.
    3. Zhang, Zengkai & Zhang, Zhongxiang, 2017. "Intermediate input linkage and carbon leakage," Environment and Development Economics, Cambridge University Press, vol. 22(6), pages 725-746, December.
    4. Beck, Marisa & Rivers, Nicholas & Wigle, Randall & Yonezawa, Hidemichi, 2015. "Carbon tax and revenue recycling: Impacts on households in British Columbia," Resource and Energy Economics, Elsevier, vol. 41(C), pages 40-69.
    5. Waldemar Marz, 2019. "Complex dimensions of climate policy: the role of political economy, capital markets, and urban form," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 85, July.
    6. Waldemar Marz, 2019. "Climate Policy and Inequality in Two-Dimensional Political Competition," ifo Working Paper Series 319, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    7. Jared C. Carbone & Nicholas Rivers & Akio Yamazaki & Hidemichi Yonezawa, 2020. "Comparing Applied General Equilibrium and Econometric Estimates of the Effect of an Environmental Policy Shock," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(4), pages 687-719.
    8. Atsushi Yamagishi, 2019. "Transboundary pollution, tax competition and the efficiency of uncoordinated environmental regulation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(3), pages 1165-1194, August.
    9. Roolfs, Christina & Gaitan, Beatriz & Edenhofer, Ottmar, 2021. "Make or brake — Rich states in voluntary federal emission pricing," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    10. Clemens Fuest & Volker Meier, 2024. "Will the centralization of carbon pricing revenue in the European Union lead to laxer climate policy?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 126(3), pages 465-488, July.
    11. Jia, Zhijie & Lin, Boqiang, 2022. "CEEEA2.0 model: A dynamic CGE model for energy-environment-economy analysis with available data and code," Energy Economics, Elsevier, vol. 112(C).
    12. Zenglian Zhang & Wenju Zhao, 2018. "Research on Financial Pressure, Poverty Governance, and Environmental Pollution in China," Sustainability, MDPI, vol. 10(6), pages 1-24, June.
    13. Dietrich Earnhart & Lana Friesen, 2021. "Enforcement Federalism: Comparing the Effectiveness of Federal Punishment versus State Punishment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(2), pages 227-255, February.

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    Keywords

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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