Integrating climate policy and fiscal policy: national policies under international systems competition

• Applicants: Dr. Kai Leßmann; Professor Dr. Marco Runkel
• Subject Area: Economic Policy, Applied Economics
• Term: from 2017 to 2021
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 326144982

Towards the end of their survey of fiscal federalism literature Boadway and Tremblay (2012) conclude that national states find themselves increasingly under pressure from international (tax) competition and tight fiscal constraints in providing public goods. By the same token, constraints on environmental and climate policies seem very likely. Yet there is little literature that investigates the limiting effects that tax competition and national debt impose on national environmental and climate policy and, likewise, how climate policy could push back limits and create new options for fiscal policy. This project addresses two questions at the core of this gap of knowledge: 1. What limitations and opportunities do tax competition and national debt create for national policies, in particular for national environmental and climate policy?2. Contrary, which opportunities does climate policy offer governments with respect to their fiscal policy?To this end, the project focuses on synergies of climate policy and strategies to reduce tax competition and/or national debt, investigating how explicitly linking these aspects may deliver improvements for both issues. The project addresses these questions in two work packages, one on tax competition and the other one on national debt. Each of these work packages is structured in three tasks. For the interrelation of climate policy and tax competition, we consider (i) asymmetric tax competition and regional differences, (ii) the role of interest groups, and (iii) the scope of a top-level government. In the con-text of climate policy and national debt, we focus on (i) climate policy in a tax-smoothing-framework of public debt, (ii) climate policy in a political-economy-framework of public debt, and finally (iii) the role of budget institutions in debt policy for climate policy. A third work package draws on the de-velopments of the previous work packages and explores feedbacks between tax competition and debt in a climate policy setting.To this end, the project brings together the expertise of the Potsdam Institute for Climate Impact Research and the Technische Universität Berlin in modeling climate policy, tax competition, and public debt. The proposed research agenda can therefore rely on both theoretical analysis and numerical modeling.The project is designed for a three year time period with equal contributions by both partners. Close cooperation of the two partners is ensured by geographical vicinity and existing good working relations.

• DFG Programme: Research Grants