The role of government commitment for environmental policy and capital movements

Marsiliani, L.; Renström, TI.

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 locating 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 locating abroad.

Citation

Marsiliani, L., & Renström, T. (2006). The role of government commitment for environmental policy and capital movements. BE Journal of Macroeconomics, 6(3), Article 8. https://doi.org/10.2202/1534-5998.1229

• Journal Article Type: Article
• Online Publication Date: Jan 20, 2007
• Publication Date: 2006-11
• Deposit Date: Aug 18, 2008
• Publicly Available Date: Aug 18, 2008
• Journal: BE Journal of Macroeconomics
• Electronic ISSN: 1935-1690
• Publisher: De Gruyter
• Peer Reviewed: Peer Reviewed
• Volume: 6
• Issue: 3
• Article Number: 8
• DOI: https://doi.org/10.2202/1534-5998.1229
• Keywords: Time consistency, Taxation, Environmental policy, Political economy, International.
• Public URL: https://durham-repository.worktribe.com/output/1578017