Vertical fiscal externalities and the environment

Christoph Böhringer, Nicholas Rivers and Hidemichi Yonezawa

No V-370-14, Working Papers from University of Oldenburg, Department of Economics

Abstract: We show that imposition of a state-level environmental tax in a federation crowds out preexisting federal taxes. We explain how this vertical fiscal externality can lead unilateral statelevel environmental policy to generate a welfare gain in the implementing state, at the expense of other states. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that - as a consequence of vertical fiscal externalities - state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.

Keywords: fiscal externality; climate policy; federalism; computable general equilibrium (search for similar items in EconPapers)
Date: 2014-11, Revised 2014-11
New Economics Papers: this item is included in nep-cmp, nep-ene, nep-env and nep-pbe
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Citations: View citations in EconPapers (1)

Published in Oldenburg Working Papers V-370-14

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http://www.uni-oldenburg.de/fileadmin/user_upload/ ... ete/vwl/V-370-14.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Vertical fiscal externalities and the environment (2016)
Working Paper: Vertical fiscal externalities and the environment (2016)
Working Paper: Vertical Fiscal Externalities and the Environment (2014)
Working Paper: Vertical fiscal externalities and the environment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:old:dpaper:370

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