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Political Competition within and between Parties: An Application to Environmental Policy

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  • Cremer, Helmuth
  • De Donder, Philippe
  • Gahvari, Firouz

Abstract

This paper presents a political economy model that is consistent with the low rate of emission taxes in the U.S., as well as the fact that neither Democrats nor Republicans propose to increase them. The voters differ according to their wage and capital incomes. They vote over the emission tax rate and a budgetary rule that specifies how to redistribute the tax proceeds. The political competition is modeled à la Roemer [Roemer, J., 2001. Political Competition: Theory and Applications. Harvard University Press] where the two parties care for the policies they propose as well as the probability of winning; the equilibrium solution concept is the Party Unanimity Nash Equilibrium (PUNE). We calibrate the model using U.S. data and compute the PUNEs numerically. Two types of PUNEs emerge. In one, reflecting the preferences of the militants in the two parties, equilibrium is characterized by both parties proposing a very huge tax rate, with Democrats typically beating the Republicans. In the other, dictated more by the concerns of the opportunists who care most about winning elections, both offer subsidies and both have a chance to win the election.
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  • Cremer, Helmuth & De Donder, Philippe & Gahvari, Firouz, 2005. "Political Competition within and between Parties: An Application to Environmental Policy," IDEI Working Papers 358, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:704
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    References listed on IDEAS

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    Cited by:

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    3. Niklas Potrafke, 2011. "Does government ideology influence budget composition? Empirical evidence from OECD countries," Economics of Governance, Springer, vol. 12(2), pages 101-134, June.
    4. Habla, Wolfgang & Roeder, Kerstin, 2017. "The political economy of mitigation and adaptation," European Economic Review, Elsevier, vol. 92(C), pages 239-257.
    5. Beland, Louis-Philippe & Boucher, Vincent, 2015. "Polluting politics," Economics Letters, Elsevier, vol. 137(C), pages 176-181.
    6. Aaron A. Elrod & Serkan Karadas & Katherine C. Theyson, 2019. "The effect of gubernatorial political parties on monitoring and enforcement of federal environmental regulation: evidence from the Clean Water Act," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 21(2), pages 171-202, April.
    7. McKitrick, Ross & Lee, Jamie, 2017. "Forming a Majority Coalition for Carbon Taxes under a State-Contingent Updating Rule," Strategic Behavior and the Environment, now publishers, vol. 6(4), pages 289-309, November.
    8. Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter?," Journal of Health Economics, Elsevier, vol. 29(6), pages 797-810, December.
    9. Niklas Potrafke, 2010. "Ideology and cultural policy," TWI Research Paper Series 49, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    10. Patrick Laurency & Dirk Schindler, 2011. "International Climate Agreements, Cost Reductions and Convergence of Partisan Politics," CESifo Working Paper Series 3591, CESifo.
    11. Cremer, Helmuth & De Donder, Philippe & Gahvari, Firouz, 2008. "Political competition within and between parties: An application to environmental policy," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 532-547, April.
    12. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
    13. Christian Bjørnskov & Niklas Potrafke, 2012. "Political Ideology and Economic Freedom Across Canadian Provinces," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 38(2), pages 143-166.
    14. López, Ramón & Galinato, Gregmar I. & Islam, Asif, 2011. "Fiscal spending and the environment: Theory and empirics," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 180-198, September.
    15. Alvaro Aguirre, 2024. "Macro Implications of Inequality-driven Political Polarization," Working Papers Central Bank of Chile 1011, Central Bank of Chile.
    16. Fredriksson, Per G. & Wang, Le & Mamun, Khawaja A., 2011. "Are politicians office or policy motivated? The case of U.S. governors' environmental policies," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 241-253, September.
    17. Clas Eriksson & Joakim Persson, 2013. "Democracy, income and pollution," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(3), pages 291-308, July.
    18. Vincent Anesi & Philippe De Donder, 2011. "Secondary issues and party politics: an application to environmental policy," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 36(3), pages 519-546, April.
    19. Mechtel, Mario & Potrafke, Niklas, 2009. "Political Cycles in Active Labor Market Policies," MPRA Paper 14270, University Library of Munich, Germany.
    20. Habla, Wolfgang & Roeder, Kerstin, 2013. "Intergenerational aspects of ecotax reforms – An application to Germany," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 301-318.
    21. Liu, Yunqiang & Liu, Sha & Shao, Xiaoyu & He, Yanqiu, 2022. "Policy spillover effect and action mechanism for environmental rights trading on green innovation: Evidence from China's carbon emissions trading policy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 153(C).
    22. De Donder, Philippe & Gallego, Maria, 2017. "Electoral Competition and Party Positioning," TSE Working Papers 17-760, Toulouse School of Economics (TSE).

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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