Lobbying, Time Preferences and Emission Tax Policy

Teun Schrieks (), Julia Swart (), Fujin Zhou () and Wouter Botzen
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Teun Schrieks: Vrije Universiteit Amsterdam
Julia Swart: Utrecht University
Fujin Zhou: Vrije Universiteit Amsterdam

Economics of Disasters and Climate Change, 2023, vol. 7, issue 1, No 1, 32 pages

Abstract: Abstract We develop a theoretical model to study the combined effect of lobbying and time preferences on emission tax policies. With a two-period model, we show that the influence of lobbying, by dirty industries and by environmental organizations, on the equilibrium tax decreases with the time horizon of the policymakers. An extension of the model to four periods shows that social welfare maximising policymakers may implement a tax higher than the marginal cost in the first period to speed up the transition to green technology. A policymaker influenced by lobby groups may, however, do the opposite, because future lobbying income will decrease if more firms invest in green technology. The results of this study indicate that countries with powerful lobby groups and a short-sighted policymaker are not likely to implement the optimal carbon tax. The influence of lobbying in combination with time preferences may explain some of the diversity in carbon taxes that we observe in practice. The results lead to the policy recommendation to combine carbon taxes with trade policies, which create an incentive for short-sighted governments to participate in carbon pricing policies.

Keywords: Discounting; Carbon pricing; Emission Tax; Lobbying; Political Economy; Time preferences (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s41885-022-00123-9

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