Arbeitspapier

Vertical fiscal externalities and the environment

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.

Language
Englisch

Bibliographic citation
Series: Oldenburg Discussion Papers in Economics ; No. V-370-14

Classification
Wirtschaft
Subject
fiscal externality
climate policy
federalism
computable general equilibrium

Event
Geistige Schöpfung
(who)
Böhringer, Christoph
Rivers, Nicholas
Yonezawa, Hidemichi
Event
Veröffentlichung
(who)
University of Oldenburg, Department of Economics
(where)
Oldenburg
(when)
2014

Handle
Last update
10.03.2025, 11:46 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Böhringer, Christoph
  • Rivers, Nicholas
  • Yonezawa, Hidemichi
  • University of Oldenburg, Department of Economics

Time of origin

  • 2014

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