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http://ssrn.com/abstract=831888
 
 

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Political Competition Within and Between Parties: An Application to Environmental Policy


Helmuth Cremer


University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Philippe De Donder


Toulouse School of Economics - GREMAQ-IDEI

Firouz Gahvari


University of Illinois at Urbana-Champaign - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

September 2005

CEPR Discussion Paper No. 5228

Abstract:     
This paper presents a political economy model that explains the low rate of emission taxes in the U.S., as well as the fact that neither Democrats nor Republicans propose to increase them. The voters differ according to their wage and capital incomes which are assumed to have a bivariate lognormal distribution. They vote over the emission tax rate and a budgetary rule that specifies how to redistribute the tax proceeds. The political competition is modeled a la Roemer (2001) where the two parties care for the policies they propose as well as the probability of winning; the equilibrium solution concept is the Party Unanimity Nash Equilibrium (PUNE). We calibrate the model using U.S. data and compute the PUNEs numerically. Two main results emerge. All "viable" PUNEs entail subsidies on emissions (as opposed to taxes). This indicates the importance of distributional concerns in garnering political support for environmental policies. Second, parties always propose an interior value for the budgetary rule even though all citizens prefer extreme values. This illustrates the emergence of political compromise to attract voters.

Number of Pages in PDF File: 42

Keywords: Emission taxes, political competition, PUNE, distributional concerns, political compromise

JEL Classification: D72, H23

working papers series


Date posted: October 24, 2005  

Suggested Citation

Cremer, Helmuth and De Donder, Philippe and Gahvari, Firouz, Political Competition Within and Between Parties: An Application to Environmental Policy (September 2005). CEPR Discussion Paper No. 5228. Available at SSRN: http://ssrn.com/abstract=831888

Contact Information

Helmuth Cremer (Contact Author)
University of Toulouse (GREMAQ & IDEI) ( email )
Toulouse, 31000
France
+33 1 6112 8606 (Phone)
+33 1 6112 8637 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Philippe De Donder
Toulouse School of Economics - GREMAQ-IDEI ( email )
Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31015
France
+33 1 6112 8542 (Phone)
+33 1 6112 8637 (Fax)
Firouz Gahvari
University of Illinois at Urbana-Champaign - Department of Economics ( email )
313 David Kinley Hall, 1407 West Gregory Drive
Urbana, IL 61801
United States
HOME PAGE: http://www.economics.illinois.edu/people/fgahvari
CESifo (Center for Economic Studies and Ifo Institute) ( email )
Poschingerstr. 5
Munich, DE-81679
Germany
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