Peter Michaelis, Thomas Ziesemer
Policy Diffusion, Lobbying and the Taxation of Emissions
Abstract:
Policy diffusion refers to the process by which a political innovation
– like the introduction of a novel emission tax –
disseminates over time among countries. In order to analyze this issue
from an economic point of view we develop a simple two-country-model of
the taxation of emissions in presence of (possible) policy diffusion.
Contrary to the usual Nash setting of simultaneous decision making we
consider a Stackelberg game: In the first step the domestic government
introduces an emission tax td thus acting as Stackelberg-leader, in the
second step the foreign government decides whether or not to introduce
an emission tax tf and in the third step the firms decide on their
output quantities to be sold on a third country’s market. For
the
case of an exogenous given probability of policy diffusion we show that
the optimal domestic tax rate is c.p. the higher, the higher the
probability of policy diffusion is. Moreover, we explore under which
conditions first-mover behaviour by the domestic government leads to a
higher tax rate compared to the Nash solution In the next step we
introduce an endogenous probability of policy diffusion by combining
our model with a strategic lobbying approach. As a result, the
probability of policy diffusion is c.p. the smaller, the higher
domestic tax rate td is. Consequently, in fixing the optimal tax rate
the domestic government has to account for the foreign firm’s
lobbying activities otherwise it will choose a tax rate too high.
JEL: F18, Q55, Q58
Paper:
Paper available as pdf-file.
Beitrag Nr. 302, Volkswirtschaftliche Diskussionsreihe, Institut
für
Volkswirtschaftslehre der Universität Augsburg
Contact:
Peter
Michaelis, University of Augsburg, Department of Economics,
D-86135
Augsburg,
Germany, phone +49-821-598-4057, fax +49-821-598-4217,
email: peter.michaelis@wiwi.uni-augsburg.de
Thomas
Ziesemer, University of Augsburg, Department of Economics,
D-86135
Augsburg,
Germany, phone +49-821-598-4061, fax +49-821-598-4217,
email: thomas.ziesemer@wiwi.uni-augsburg.de
v.
K., 26.08.2008