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Environmental policy instruments and corruption

Journal article
Authors Richard Damania
Thomas Sterner
Dale Whittington
Published in China Economic Journal
Volume 13
Issue 2
Pages 123–138
ISSN ISSN: 1753-8963
Publication year 2020
Published at Department of Economics
Pages 123–138
Language en
Keywords Climate Policy; Effects of corruption; Taxes versus regulation
Subject categories Economics


In this paper we discuss the choice of taxation or regulation of environmental externalities. The subject might appear to be a well-trodden path, but we believe we have a new angle on this well-established question. We think we are being quite realistic when we assume that corrupt practices lurk behind every corner, threatening to derail the good intents of any regulator. With this starting point we compare the result of trying to impose taxation contra regulation in environments where the implementation in both cases will be marred by corrupt practices of under-reporting emissions and bribing inspectors. In a simple and stylized model of these circumstances we show that taxes tend to perform the same or better in the sense that a pollution tax induces greater compliance and lower pollution than does a regulatory standard. We also show that the advantages of a tax are particularly great in countries where the enforcement ability of authorities is weak, which is commonly thought to be the case in developing countries.

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