The impact of policy diffusion on optimal emission taxes

  • We incorporate the process of policy diffusion (i.e. the uncoordinated dissemination of policies among countries) into a probabilistic two-country-model of strategic environmental policy. Contrary to the usual setting with simultaneous decision making we consider the impact of sequential decision making: In the first step the domestic government introduces an emission tax, in the second step policy diffusion occurs with a certain probability and in the third step the firms decide on output quantities. Within this framework we analyze how the prospect of policy diffusion, motivated by a higher damage parameter in the domestic country, influences the optimal domestic emission tax. We show that if the damage parameter in the foreign country is sufficiently high policy diffusion will occur which leads to higher tax rates and higher welfare compared to the equilibrium resulting from simultaneous decision making. Moreover, we show that an increase in the domestic tax rate also increases theWe incorporate the process of policy diffusion (i.e. the uncoordinated dissemination of policies among countries) into a probabilistic two-country-model of strategic environmental policy. Contrary to the usual setting with simultaneous decision making we consider the impact of sequential decision making: In the first step the domestic government introduces an emission tax, in the second step policy diffusion occurs with a certain probability and in the third step the firms decide on output quantities. Within this framework we analyze how the prospect of policy diffusion, motivated by a higher damage parameter in the domestic country, influences the optimal domestic emission tax. We show that if the damage parameter in the foreign country is sufficiently high policy diffusion will occur which leads to higher tax rates and higher welfare compared to the equilibrium resulting from simultaneous decision making. Moreover, we show that an increase in the domestic tax rate also increases the probability that the foreign country adopts the tax policy.show moreshow less

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Metadaten
Author:Peter MichaelisORCiDGND, Thomas ZiesemerGND
URN:urn:nbn:de:bvb:384-opus4-711015
Frontdoor URLhttps://opus.bibliothek.uni-augsburg.de/opus4/71101
Series (Serial Number):Volkswirtschaftliche Diskussionsreihe (318)
Publisher:Volkswirtschaftliches Institut, Universität Augsburg
Place of publication:Augsburg
Type:Working Paper
Language:English
Year of first Publication:2012
Publishing Institution:Universität Augsburg
Release Date:2020/02/21
Tag:JEL: F18, Q55, Q58
Pagenumber:19
Institutes:Wirtschaftswissenschaftliche Fakultät
Wirtschaftswissenschaftliche Fakultät / Institut für Volkswirtschaftslehre
Wirtschaftswissenschaftliche Fakultät / Institut für Volkswirtschaftslehre / Lehrstuhl für Umwelt- und Ressourcenökonomie
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Journals:Volkswirtschaftliche Diskussionsreihe
Licence (German):Deutsches Urheberrecht