Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/105058 
Year of Publication: 
2014
Series/Report no.: 
Oldenburg Discussion Papers in Economics No. V-370-14
Publisher: 
University of Oldenburg, Department of Economics, Oldenburg
Abstract: 
We show that imposition of a state-level environmental tax in a federation crowds out preexisting federal taxes. We explain how this vertical fiscal externality can lead unilateral statelevel environmental policy to generate a welfare gain in the implementing state, at the expense of other states. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that - as a consequence of vertical fiscal externalities - state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.
Subjects: 
fiscal externality
climate policy
federalism
computable general equilibrium
Document Type: 
Working Paper

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