Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171677
Authors: 
Böhringer, Christoph
Rivers, Nicholas
Yonezawa, Hidemichi
Year of Publication: 
2016
Series/Report no.: 
Economics Working Paper Series 16/234
Abstract: 
We show that imposition of a state-level environmental tax in a federation crowds out pre-existing federal taxes. We explain how this vertical fiscal externality can lead unilateral state-level environmental policy to generate a welfare gain in the implementing state, at the expense of other states, even absent any environmental benefits. 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
JEL: 
C68
H77
Q54
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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