Foreign direct investment and environmental taxes

Roberto A. De Santis () and Frank Stähler ()
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Frank Stähler: Corresponding author: Department of Economics, University of Otago, PO Box 56, Dunedin, New Zealand., http://www.business.otago.ac.nz/econ/

No 921, Working Paper Series from European Central Bank

Abstract: This paper studies the effect of foreign direct investment (FDI) on environmental policy stringency in a two-country model with trade costs, where FDI could be unilateral and bilateral and both governments address local pollution through environmental taxes. We show that FDI does not give rise to ecological dumping because the host country has an incentive to shift rents away from the source country towards the host country. Environmental policy strategies and welfare effects are studied under the assumption that parameter values support FDI to be profitable. JEL Classification: F12, F18, F23.

Keywords: Foreign direct investment; environmental taxes; multinational enterprises; plant location. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env, nep-int and nep-res
Date: 2008-07
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Related works:
Working Paper: Foreign Direct Investment and Environmental Taxes (2000)
Journal Article: Foreign Direct Investment and Environmental Taxes (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20080921

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