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Political Competition within and between Parties: An Application to Environmental Policy

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  • Ecology
  • Geography
  • Political Science


Political competition within and between parties: an application to environmental policy1 Helmuth Cremer Toulouse School of Economics (IDEI, GREMAQ and Institut universitaire de France) Philippe De Donder Toulouse School of Economics (IDEI and GREMAQ-CNRS) Firouz Gahvari Department of Economics University of Illinois at Urbana-Champaign August 2005 This revision, July 2007 1We thank the participants at seminars in Yale, WZB (Berlin), the 2005 PET Conference (Marseille), the Conference in tribute to JJ La¤ont (Toulouse), and particularly Stephen Coate, Torsten Persson and John Roemer, for their helpful comments and suggestions. We are particu- larly grateful to two anonymous referees of this Journal and the Co-Editor, Antonio Merlo, for their useful comments and advice. Abstract This paper presents a political economy model that is consistent with the low rate of emission taxes in the U.S., as well as the fact that neither Democrats nor Republicans propose to increase them. The voters di¤er according to their wage and capital in- comes. They vote over the emission tax rate and a budgetary rule that speci es how to redistribute the tax proceeds. The political competition is modeled à la Roemer (2001) where the two parties care for the policies they propose as well as the probability of winning; the equilibrium solution concept is the Party Unanimity Nash Equilibrium (PUNE). We calibrate the model using U.S. data and compute the PUNEs numerically. Two types of PUNEs emerge. In one, re ecting the preferences of the militants in the two parties, equilibrium is characterized by both parties proposing a very huge tax rate, with Democrats typically beating the Republicans. In the other, dictated more by the concerns of the opportunists who care most about winning elections, both o¤er subsidies and both have a chance to win the election. Key words: Emission taxes, political competition, PUNE, distributional concerns, political compromise. JEL Classi cation: H23, D72. 1 Introd

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