Inter‐regional competition,comparative advantage and environmental federalism |
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Authors: | Ida Ferrara Paul Missios Halis Murat Yildiz |
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Institution: | 1. Department of Economics, York University;2. Department of Economics, Ryerson University |
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Abstract: | In this paper, we compare endogenous environmental policy setting with centralized and decentralized governments when regions have comparative advantages in different polluting goods. We develop a two‐region, two‐good model with inter‐regional environmental damages and perfect competition in product markets, where both regions produce both goods. Despite positive spillovers of pollution across regions, the model predicts that decentralization may lead to weaker or stricter environmental standards or taxes, depending on the degree of regional comparative advantage and the extent of transboundary pollution. This suggests that federalism can lead to either a “race to the bottom” or a “race to the top,” without relying on inefficient lobbying efforts or capital competition. |
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Keywords: | H77 Q56 H41 |
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