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Environmental Standards in a Large Open Economy

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  • JEFFREY PETCHEY

Abstract

The small-country price-taking assumption of Oates and Schwab is relaxed to consider a large open economy that can influence its net capital return. This creates an incentive for the country to distort its policies. The key question asked is whether this induces inefficient outcomes. The result is that if the country has a dedicated tax on capital and uses this tax optimally, the Oates and Schwab first-best result still holds. However, efficiency in a large open economy requires that the tax on capital be nonzero, unlike Oates and Schwab where the capital tax must be zero for first-best efficiency.

Suggested Citation

  • Jeffrey Petchey, 2015. "Environmental Standards in a Large Open Economy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(3), pages 461-467, June.
    • Handle: RePEc:bla:jpbect:v:17:y:2015:i:3:p:461-467
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    File URL: http://hdl.handle.net/10.1111/jpet.12098
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    References listed on IDEAS

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    1. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
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    Cited by:

    1. Michael S. Michael & Panos Hatzipanayotou & Nikos Tsakiris, 2023. "Can Small Economies Act Strategically? The Case of Consumption Pollution and Non-tradable Goods," DEOS Working Papers 2312, Athens University of Economics and Business.
    2. Thomas Eichner & Rüdiger Pethig, 2018. "Environmental standards in a large open economy revisited," Letters in Spatial and Resource Sciences, Springer, vol. 11(2), pages 157-166, July.
    3. Satoshi Kasamatsu & Hikaru Ogawa, 2020. "International capital market and repeated tax competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 751-768, June.
    4. Thomas Eichner & Rüdiger Pethig, 2017. "Petchey's (2015) Extension of Oates & Schwab's (1988) Efficiency Result Revisited," CESifo Working Paper Series 6315, CESifo.
    5. Eichner, Thomas & Pethig, Rüdiger, 2018. "Competition in emissions standards and capital taxes with local pollution," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 191-203.

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