A BEJM Topics article.

Abstract

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 locating 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 locating abroad.

Submitted: June 2, 2004 · Accepted: August 11, 2004 · Published: January 20, 2007

Originally published in Topics in Macroeconomics.

Recommended Citation

Marsiliani, Laura and Renström, Thomas I. (2006) "The Role of Government Commitment for Environmental Policy and Capital Movements," Topics in Macroeconomics: Vol. 6 : Iss. 3, Article 8.
Available at: http://www.bepress.com/bejm/topics/vol6/iss3/art8