Environmental Policy and Capital Movements: The Role of Government Commitment

Laura Marsiliani and Thomas Renstrom
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Laura Marsiliani: W. Allen Wallis Institute of Political Economy, University of Rochester
Thomas Renstrom: W. Allen Wallis Institute of Political Economy, University of Rochester and CEPR

No WP31, Wallis Working Papers from University of Rochester - Wallis Institute of Political Economy

Abstract: This paper explores the relationship between environmental protection and international capital movements, when tax policy is endogenous (through voting). A two-period general equilibrium model of a small open economy is specified to compare the effects of two different constitutions (commitment or no commitment in tax policy), as well as income inequality. Under the commitment regime, the equilibrium is characterised by a lower labour tax, higher environmental tax and less capital moving abroad than in the no-commitment equilibrium. Furthermore, given the degree of commitment, more equal societies are characterised by tougher environmental policy and less capital moving abroad.

Keywords: Environmental policy; international capital movements; time consistency; inequality; political economy; human capital (search for similar items in EconPapers)
JEL-codes: F20 H21 H23 (search for similar items in EconPapers)
Pages: pages
Date: 2002-10
New Economics Papers: this item is included in nep-agr, nep-net and nep-pbe
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