nep-res New Economics Papers
on Resource Economics
Issue of 2022‒12‒05
two papers chosen by
Maximo Rossi
Universidad de la República

  1. Do International Environmental Agreements Affect Tax and Environmental Competition among Asymmetric Countries? By Thierry Madiès; Ornella Tarola; Emmanuelle Taugourdeau
  2. Testing the free-rider hypothesis in climate policy By Robert C. Schmidt; Moritz Drupp; Frikk Nesje; Hendrik Hoegen

  1. By: Thierry Madiès (Université de Fribourg, Switzerland.); Ornella Tarola (DISSE, Rome, Italy); Emmanuelle Taugourdeau (CNRS, CREST, Palaiseau, France)
    Abstract: Developed and developing countries compete using various instruments including corporate taxes and environmental regulations in order to attract firms. They also commit to international environmental agreements with “common but differentiated responsibilities” (CBDR). We investigate how the principles of CBDR and of “in a position to do so” embedded in global environmental agreements affect optimal corporate taxes and environmental standards. We find that the latter depend only on the mitigation burdens imposed by international agreements. In other words, the burden of competition between countries is carried by corporate taxes, which depend among others on the level of firms’ mobility costs and on production cost differentials. Interestingly, we find that developed countries are not necessarily worse-off in terms of payoffs under CBDR, while emerging countries “in a position to do so” are not necessarily harmed by assuming responsibilities.
    Keywords: Tax Competition, Capital Integration, Global Pollution, Environmental agreements.
    JEL: H2 R3 R5 Q5
    Date: 2022–11–15
  2. By: Robert C. Schmidt; Moritz Drupp; Frikk Nesje; Hendrik Hoegen
    Abstract: Free-riding is widely perceived as a key obstacle for effective climate policy. In the game-theoretic literature on non-cooperative climate policy and on climate cooperation, the free-rider hypothesis is ubiquitous. Yet, the free-rider hypothesis has not been tested empirically in the climate policy context. With the help of a theoretical model, we demonstrate that if free-riding were the main driver of lax climate policies around the globe, then there should be a pronounced country-size effect: Countries with a larger share of the world's population should, all else equal, internalize more climate damages and thus set higher carbon prices. We use this theoretical prediction for testing the free-rider hypothesis empirically. Drawing on data on emission-weighted carbon prices from 2020, while controlling for a host of other potential explanatory variables of carbon pricing, we find that the free-rider hypothesis cannot be supported empirically, based on the criterion that we propose. Hence, other issues may be more important for explaining climate policy stringency or the lack thereof in many countries.
    Date: 2022–11

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