Transboundary Pollution, Tax Competition and Redistribution in Federal Systems
Silva, Emilson C. D.
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We examine the shape of federal policy making in three different policy scenarios, in which regional governments determine regional environmental policies to control correlated transboundary pollutants and the center implements interregional income transfers. We examine policy making under horizontal and hierarchical federal structures. In a horizontal structure, federal and regional governments make simultaneous policy choices. In hierarchical structures, federal and regional governments make sequential policy choices. Sequential choices may feature centralized or decentralized leadership. Our results indicate that hierarchical federal structures characterized by decentralized leadership may be socially superior to horizontal and hierarchical federal structures characterized by centralized leadership.