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International Environmental Agreements, Fiscal Federalism, and Constitutional Design

Wolfgang Buchholz (), Alexander Haupt () and Wolfgang Peters ()
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Wolfgang Peters: Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder)

No 2, Discussion Paper Series RECAP15 from RECAP15, European University Viadrina, Frankfurt (Oder)

Abstract: In this paper, we analyse how the prospect of international negotiations over transboundary pollution shapes intra-country transfer schemes when the governments of the countries' polluting regions are in charge of environmental policy and negotiations. Federal governments can implement compensation payments between domestic regions and matching grants prior to the international negotiations between the polluting regions. The subgame-perfect transfer schemes fail to fully internalise the environmental externality, leading to an inefficient international environmental agreement. As the international spillover increases, the intra-country compensation rates increase, while the matching rates decline, distorting the incentives for the regional governments in opposing directions. We also show that decentralisation of environmental decision making can arise endogenously.

Keywords: Fiscal federalism; transboundary pollution; international environmental agreement; constitutional design; matching grants (search for similar items in EconPapers)
JEL-codes: H77 F51 Q58 H41 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2012-03
New Economics Papers: this item is included in nep-cdm, nep-ene and nep-env
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https://www.europa-uni.de/de/forschung/institut/re ... ds/recap15_DP002.pdf First version, 2012 (application/pdf)

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Journal Article: International Environmental Agreements, Fiscal Federalism, and Constitutional Design (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:euv:dpaper:002

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