Environmental Policy in Open Economies
This dissertation deals with two different aspects of environmental policies in a globalized world. First, the impact of exogenous environmental regulations on a domestic polluting sector´s international competitiveness is investigated. The applied model framework considers the government´s re-election incentives and the interrelation between environmental- and industrial policies. Second, the impact of strategic competition for internationally mobile capital on the level of environmental policies in the competing countries is examined. Also here, a second policy instrument, a corporate-profit tax, is available. Furthermore, the adverse welfare effects of a non-cooperative policy choice and different approaches of international cooperation to overcome such suboptimal policy outcome are discussed. The results of both parts of the analysis suggest that frequently expressed public concerns as well as the predictions of many economic analyses may be too pessimistic. In particular, neither does the imposition of stricter environmental regulations necessarily weaken the international competitiveness of a domestic polluting sector, nor does competition for foreign investments necessarily lead to an erosion of environmental-policy levels. Finally, even if countries do not achieve agreement on completely cooperative policy-making, partial cooperation in one instrument may serve as a politically feasible means to help them approach the socially optimal welfare level.