Abstract
This paper focuses on the welfare effects of domestic and international lobbying in the context of two countries linked by both trade and pollution. We consider a reciprocal-markets model where, in each country, a domestic firm produces a polluting good, that can result in a cross-national environmental externality, and competes in quantities in each market with a foreign firm. Each government independently sets a pollution tax under political pressure from green and industrial lobbies `a la Grossman and Helpman (1994). Our results mainly show that political pressure from domestic and/or international lobbies can help mitigate tax competition between the two countries, resulting in an improvement in social welfare. In fact, lobbying acts much like a strategic delegation device by changing the social welfare weights in the objective function of each government. The (potential) welfare-improving effect of political pressure depends on the relative strengths of the lobbies and on the nature of the strategic interactions in taxes.
Keywords
Lobbying; transboundary pollution; international trade; international politics; environmental tax;
JEL codes
- D72: Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- F12: Models of Trade with Imperfect Competition and Scale Economies • Fragmentation
- F18: Trade and Environment
- Q58: Government Policy
Reference
Philippe Bontems, Guillaume Cheikbossian, and Houda Hafidi, “Environmental Tax Competition and Welfare: The Good News about Lobbies”, TSE Working Paper, n. 24-1551, July 2024.
See also
Published in
TSE Working Paper, n. 24-1551, July 2024