Vertical fiscal externalities and the environment

Arbeitspapier

We show that imposition of a state-level environmental tax in a federation crowds out pre-existing federal taxes. We explain how this vertical fiscal externality can lead unilateral state-level environmental policy to generate a welfare gain in the implementing state, at the expense of other states, even absent any environmental benefits. 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Working Paper Series ; No. 16/234

Classification and Topics

• Classification: Wirtschaft ; Computable General Equilibrium Models ; Intergovernmental Relations; Federalism; Secession ; Climate; Natural Disasters and Their Management; Global Warming
• Subject: fiscal externality ; climate policy ; federalism ; computable general equilibrium ; Umweltpolitik ; Ökosteuer ; Finanzbeziehungen ; Externer Effekt ; Szenariotechnik ; Sensitivitätsanalyse ; Dekompositionsverfahren ; Allgemeines Gleichgewicht ; Kanada

Contributors, Location and Time

• Event: Geistige Schöpfung
• (who): Böhringer, Christoph ; Rivers, Nicholas ; Yonezawa, Hidemichi
• Event: Veröffentlichung
• (who): ETH Zurich, CER-ETH - Center of Economic Research
• (where): Zurich
• (when): 2016

Further information

• DOI: doi:10.3929/ethz-a-010608767
• Handle: http://hdl.handle.net/10419/171677
• Last update: 10.03.2025, 11:41 AM CET