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Hatzipanayotou, Panos
Lahiri, Sajal
Michael, Michael S.
Year of Publication: 
Series/Report no.: 
CESifo Working Paper No. 360
We develop a North-South model of foreign aid and cross-border pollution resulting from production activities in the recipient country. There is both private and public abatement of pollution, the latter being financed through emissions tax revenue and foreign aid. We characterise a Nash equilibrium where the donor country chooses the amount of aid, and the recipient chooses the fraction of aid allocated to pollution abatement and/or the emission tax rate. At this equilibrium, an increase in the donor's perceived rate of cross-border pollution reduces net emission levels.
Cross-border pollution
pollution abatement
foreign aid
Document Type: 
Working Paper

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