Partial environmental tax coordination and political delegation

Abstract

In the framework of environmental tax competition, this study analyzes the political delegation of tax decisions in oil-producing and oil-importing countries. The main findings are as follows: (i) with uncoordinated tax competition, voters in oil-producing countries typically choose a policymaker who is less green than the median to drive oil prices in their favor, while voters in the oil-importing countries prefer green policymakers over the median; (ii) when oil-producing countries form an oil cartel to coordinate their policies, in anticipation of such coordination, voters elect green policymakers over the median not only in oil-importing countries but also in oil-producing countries; and (iii) policy coordination by oil-producing countries is more likely to be sustained when policy leaders in those countries are exogenous to citizens for reasons such as royal rule, but it is more likely suffer a breakdown when policy leaders are elected.