International Environmental Agreements, Fiscal Federalism, and Constitutional Design

14 Pages Posted: 16 Aug 2013

See all articles by Wolfgang Buchholz

Wolfgang Buchholz

Universitaet Regensburg; CESifo (Center for Economic Studies and Ifo Institute)

Alexander Haupt

University of Plymouth - Plymouth Business School; CESifo (Center for Economic Studies and Ifo Institute)

Wolfgang Peters

European University Frankfurt

Date Written: September 2013

Abstract

In this paper, we analyze how the prospect of international negotiations over trans‐boundary pollution shapes intracountry transfer schemes when the governments of the countries' polluting regions are in charge of environmental policy and negotiations. Federal governments can implement compensation payments between domestic regions and matching grants prior to the international negotiations between the polluting regions. The subgame‐perfect transfer schemes fail to fully internalize the environmental externality, leading to an inefficient international environmental agreement. As the international spillover increases, the intracountry compensation rates increase while the matching rates decline, distorting the incentives for the regional governments in opposing directions. We also show that decentralization of environmental decision making arises endogenously.

Suggested Citation

Buchholz, Wolfgang and Haupt, Alexander and Peters, Wolfgang, International Environmental Agreements, Fiscal Federalism, and Constitutional Design (September 2013). Review of International Economics, Vol. 21, Issue 4, pp. 705-718, 2013. Available at SSRN: https://ssrn.com/abstract=2311094 or http://dx.doi.org/10.1111/roie.12065

Wolfgang Buchholz (Contact Author)

Universitaet Regensburg ( email )

D-93040 Regensburg, 93053
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Alexander Haupt

University of Plymouth - Plymouth Business School ( email )

Mast House
Plymouth, Devon PL4 8AA
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Wolfgang Peters

European University Frankfurt ( email )

Grosse Scharrnstr. 59
Frankfurt (Oder), Brandenburg 15230
Germany

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