Constant Returns to Scale with Pollution Modeled as an Unpaid Factor (Published)
If pollution emissions enter a constant returns to scale production function, the additional output generated by this unpaid factor cannot be an equilibrium phenomenon. Private factors will engage in rent seeking without some form of rationing. Herein, we propose a shared rationing mechanism and investigate the efficiency implications in a setting of devolved decision making. General equilibrium derived optimal conditions show that taxing capital alone will not provide the revenue for efficient local public good levels. Suboptimal public goods provision then leads to inefficient environmental quality. Interestingly, larger shares of emission rents rationed to mobile capital result in environmental competition becoming more fierce. Conversely, when large shares of rent are captured by locally owned fixed-factors, competition for mobile capital is subdued.
Keywords: capital tax competition, environmental federalism, rent dissipation
The Import of Capital Taxes and Environmental Standards Compared To Agglomeration on Capital Flow (Published)
Citation: Mitch Kunce (2022) The Import of Capital Taxes and Environmental Standards Compared To Agglomeration on Capital Flow, British Journal of Environmental Sciences, Vol.10, No.2, pp. 51-63
Abstract: The effect of competition for mobile capital on local (jurisdictional) policy making is critical to the fiscal-environmental federalism literature. This existing body of literature, however, is deficient in examinations of how influential local policy levers, environmental standards and taxation, compare with fundamental capital location determinants like agglomeration forces. The purpose of this investigation is to broaden the agglomeration augmented interjurisdictional competition model to effectively compare local policy and agglomeration influences on capital flow. When jurisdictions do not have access to forms of taxation that allow for the efficiency of public goods provision, agglomeration forces notably impact fiscal policy weight. Herein, the magnitude of agglomeration directly effects the determination of the capital tax rate which in turn influences the provision of public goods. Subsequent inefficient public goods provision will distort the local choice of environmental standards. The capital tax must be complimented by ‘benefit’ taxation to finance efficient public expenditure. Interestingly, when public goods are provided efficiently, the capital tax doubles as a Pigovian remedy and a subsidy instrument depending, largely, on the strength of agglomeration forces.
Keywords: agglomeration economies, capital tax competition, environmental regulation