Peter Michaelis, Thomas Ziesemer
The Impact of Policy Diffusion on Optimal Emission
Taxes
Abstract:
We incorporate the process of policy diffusion (i.e. the uncoordinated
dissemination of policies among countries) into a probabilistic
two-country-model of strategic environmental policy. Contrary to the
usual setting with simultaneous decision making we consider the impact
of sequential decision making: In the first step the domestic
government introduces an emission tax, in the second step policy
diffusion occurs with a certain probability and in the third step the
firms decide on output quantities. Within this framework we analyze how
the prospect of policy diffusion, motivated by a higher damage
parameter
in the domestic country, influences the optimal domestic emission tax.
We show that if the damage parameter in the foreign country is
sufficiently high policy diffusion will occur which leads to higher tax
rates and higher welfare compared to the equilibrium resulting from
simultaneous decision making. Moreover, we show that an increase in the
domestic tax rate also increases the probability that the foreign
country adopts the tax policy.
JEL: F18, Q55, Q58
Paper:
Paper available as pdf-file.
Beitrag Nr. 318, Volkswirtschaftliche Diskussionsreihe, Institut
für
Volkswirtschaftslehre der Universität Augsburg
Contact:
Peter
Michaelis, University of Augsburg, Department of Economics,
D-86135
Augsburg,
Germany, phone +49-821-598-4058, 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
Bo.,
08.10.2012