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Environmental Policy and Capital Movements: The Role of Government Commitment

Author

Listed:
  • Laura Marsiliani

    (W. Allen Wallis Institute of Political Economy, University of Rochester)

  • Thomas I. Renström

    (W. Allen Wallis Institute of Political Economy, University of Rochester, and CEPR)

Abstract

This paper explores the relationship between environmental protection and international capital movements, when tax policy is endogenous (through voting). A two-period general equilibrium model of a small open economy is specified to compare the effects of two different constitutions (commitment or no commitment in tax policy), as well as income inequality. Under the commitment regime, the equilibrium is characterised by a lower labour tax, higher environmental tax and less capital moving abroad than in the no-commitment equilibrium. Furthermore, given the degree of commitment, more equal societies are characterised by tougher environmental policy and less capital moving abroad.

Suggested Citation

  • Laura Marsiliani & Thomas I. Renström, 2003. "Environmental Policy and Capital Movements: The Role of Government Commitment," Working Papers 2003.4, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2003.4
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    References listed on IDEAS

    as
    1. Bovenberg, A.L. & de Mooij, R.A., 1994. "Environmental levies and distortionary taxation," Other publications TiSEM 4b32deaa-ec2f-4de7-b59b-9, Tilburg University, School of Economics and Management.
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    3. Bovenberg, A.L. & van der Ploeg, F., 1994. "Green policies in a small open economy," Other publications TiSEM 31842095-d9e5-4693-ab81-4, Tilburg University, School of Economics and Management.
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    6. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    7. Rauscher, Michael, 1997. "International Trade, Factor Movements, and the Environment," OUP Catalogue, Oxford University Press, number 9780198290506, Decembrie.
    8. Bovenberg, A Lans & van der Ploeg, Frederick, 1993. "Green Policies in a Small Open Economy," CEPR Discussion Papers 785, C.E.P.R. Discussion Papers.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Environmental policy; international capital movements; time consistency; inequality; political economy; human capital;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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