111. How Does Environmental Regulation Shape Economic Development? A Tax Competition Model of China
- Author:
- Pedro Naso and Tim Swanson
- Publication Date:
- 10-2017
- Content Type:
- Working Paper
- Institution:
- Centre for International Environmental Studies, The Graduate Institute (IHEID)
- Abstract:
- We propose a novel theoretical framework to study how environmental regulation shapes economic development in a developing country such as China. We develop a dynamic tax competition model in which local governments, located in development zones, use variation in taxes to attract workers to their jurisdictions. Their objective is to maximize tax revenue less local health costs that are proportional to local pollution. Our main result is that competition generates a reallocation of productive factors when national regulation is introduced. Local governments in more productive regions set greater production taxes than in other regions. This makes workers and output to shift from more to less developed regions of the country.
- Topic:
- Environment, Regulation, Tax Systems, Economic Development, and Competition
- Political Geography:
- China and Asia