International Environmental Agreements, Fiscal Federalism, and Constitutional Design1
نویسندگان
چکیده
In this paper, we analyse how the prospect of international negotiations over transboundary pollution shapes intra-country transfer schemes when the governments of the countriespolluting regions are in charge of environmental policy and negotiations. Federal governments can implement compensation payments between domestic regions and matching grants prior to the international negotiations between the polluting regions. The subgame-perfect transfer schemes fail to fully internalise the environmental externality, leading to an ine¢ cient international environmental agreement. As the international spillover increases, the intra-country compensation rates increase, while the matching rates decline, distorting the incentives for the regional governments in opposing directions. We also show that decentralisation of environmental decision making can arise endogenously. JEL-classi cations: Q58; H77; H41; C71; F50. Keywords: International environmental agreements; scal federalism; transboundary pollution; matching grants; constitutional design.
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