THE ROLE OF GOVERNMENT COMMITMENT FOR ENVIRONMENTAL POLICY AND CAPITAL MOVEMENTS

Published in The BE Journal in Macroeconomics, 2007, vol. 6, iss. 3. DOI: doi.org/10.2202/1534-5998.1229.

Laura Marsiliani
Thomas I. Renström

This paper explores the relationship between environmental protection and international capital movements, when tax policy is endogenous (through voting). A two-period general equilibrium model of a small open economy is specified to compare the effects of two different constitutions (commitment or no commitment in tax policy), as well as income inequality. Under the commitment regime, the equilibrium is characterised by a lower labour tax, higher environmental tax and less capital moving abroad than in the no-commitment equilibrium. Furthermore, given the degree of commitment, more equal societies are characterised by tougher environmental policy and less capital moving abroad.

Keywords: Time consistency, taxation, environmental policy, political economy, international capital movements.

JEL classification: F20, H21, H23.

Correspondence to:
L. Marsiliani, Department of Economics and Finance, Durham University Business School, Mill Hill Lane, Durham, DH1 3LB,
UK. Tel: +44-(0)191-334 6363.
Email: [email protected] Web: http://www.dur.ac.uk/laura.marsiliani/

T.I. Renström, Department of Economics and Finance, Durham University Business School, Mill Hill Lane, Durham, DH1 3LB,
UK. Tel: +44-(0)191-334 6369.
Email: [email protected] Web: http://www.dur.ac.uk/t.i.renstrom/

---

Back to Laura Marsiliani’s Research.

Back to Laura Marsiliani’s Homepage.

Back to the Department’s home page.