Cross-border pollution,public pollution abatement and capital tax competition |
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Authors: | Costas Hadjiyiannis Panos Hatzipanayotou Michael S. Michael |
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Affiliation: | 1. Department of Economics , University of Cyprus , Nicosia , Cyprus costash@ucy.ac.cy;3. International and European Economic Studies, Athens University of Economics and Business , Athens , Greece;4. CES-ifo , Munich , Germany;5. Department of Economics , University of Cyprus , Nicosia , Cyprus |
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Abstract: | We analyze the case where governments have to use income tax revenue to finance public pollution abatement and relate the results to the existing literature on capital tax competition. We show that the impact of public pollution abatement on Nash taxes on mobile factor income is non-trivial and the standard results from the tax competition literature can be reversed. When the two countries are identical, the Nash equilibrium capital income taxes converge to the tax on immobile factors income as the degree of cross-border pollution converges to one. When countries are asymmetric and pollution is local the presence of public pollution abatement lowers the capital tax for the capital exporting country, while the impact on the capital tax of the capital importing country is ambiguous. |
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Keywords: | Nash income taxes public pollution abatement cross-border pollution capital mobility JEL Classifications F15 F18 F22 H21 |
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