Developing Country Second-Mover Advantage in Competition Over Environmental Standards and Taxes

38 Pages Posted: 5 Jan 2012

See all articles by Valeska Groenert

Valeska Groenert

affiliation not provided to SSRN

Ben Zissimos

Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: December 30, 2011

Abstract

We show that, in competition between a developed country and a developing country over environmental standards and taxes, the developing country may have a ‘second-mover advantage.’ In our model, firms do not unanimously prefer lower environmental-standard levels. We introduce this feature to an otherwise familiar model of fiscal competition. Four distinct outcomes can be characterized by varying the marginal cost to firms of an environmental externality: the outcome may be efficient; the developing country may be a ‘pollution haven’ - a place to escape excessively high environmental standards in the developed country; the developing country may ‘undercut’ the developed country and attract all firms; the developed country may be a pollution haven.

Keywords: environmental standards, fiscal competition, second-mover advantage, tax competition

JEL Classification: H100, H250, H730, H870

Suggested Citation

Groenert, Valeska and Zissimos, Ben, Developing Country Second-Mover Advantage in Competition Over Environmental Standards and Taxes (December 30, 2011). CESifo Working Paper Series No. 3686, Available at SSRN: https://ssrn.com/abstract=1980064 or http://dx.doi.org/10.2139/ssrn.1980064

Valeska Groenert

affiliation not provided to SSRN ( email )

Ben Zissimos (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

HOME PAGE: http://www.vanderbilt.edu/econ/cv/ZissimosCV.pdf

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