Political competition within and between parties: an application to environmental policy

Helmuth Cremer (), Philippe De Donder and Firouz Gahvari ()

No 5228, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper presents a political economy model that explains 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 which are assumed to have a bivariate lognormal distribution. 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 (2001) 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 main results emerge. All "viable" PUNEs entail subsidies on emissions (as opposed to taxes). This indicates the importance of distributional concerns in garnering political support for environmental policies. Second, parties always propose an interior value for the budgetary rule even though all citizens prefer extreme values. This illustrates the emergence of political compromise to attract voters.

Keywords: distributional concerns; Emission taxes; political competition; political compromise; PUNE (search for similar items in EconPapers)
JEL-codes: D72 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env, nep-pbe, nep-pol and nep-res
Date: 2005-09
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Related works:
Working Paper: Political Competition within and between Parties: An Application to Environmental Policy (2005)
Journal Article: Political competition within and between parties: An application to environmental policy (2008)
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