Political Institutions, Environmental Policy and Growth

Abstract

We analyze the impact of micro-founded political institutions on environmental policy and economic growth. We model an overlapping-generations economy, where individuals differ in preferences over the environment (as well as in age). Labor taxation and capital taxation is used to finance a public good and a public production factor, period by period. The underlying political institution is a parliament. Party entry, parliamentary composition, coalition formation, and bargaining are endogenous. The benchmark is when all decisions are taken in parliament. We compare this constitution with an independent regulator, elected in parliament. The regulatory regime causes lower pollution, but production inefficiency.

Keywords: Comparative politics, voting, bargaining, taxation, environmental policy, endogenous growth, overlapping generations

JEL Classification: D62, D72, E20, E62, H20, H55, O41, Q58