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Environmental tax evasion as a determinant of the Porter and pollution haven hypotheses in a corrupt political system

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  • Hamaguchi, Yoshihiro
Abstract
The Porter hypothesis is not very statistically significant, especially in developing countries. This is likely because it overlooks environmental-policy-related bribes, and reducing the regulatory cost burden through bribes can encourage innovation. Moreover, the more competitive are the international markets, the more likely is it for firms to bribe officials in making export decisions. This study identifies a theoretical mechanism for this hypothesis by analyzing the effects of trade environmental policies and bribes associated with tax evasion on pollution, growth, and productivity in an R&D-based growth model considering exporting firms that engage in environmental tax evasion. The analysis yields a weak Porter hypothesis wherein an increase in environmental tax for exporting firms leads to economic growth and pollution reduction. Then, the greasing-the-wheel-of-trade and sanding-the-wheel-of-trade hypotheses are compatible. The different results of trade and environmental policies’ effects on each developing country’s green innovation are likely due to the political institutions’ maturity.

Suggested Citation

  • Hamaguchi, Yoshihiro, 2023. "Environmental tax evasion as a determinant of the Porter and pollution haven hypotheses in a corrupt political system," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 610-633.
  • Handle: RePEc:eee:ecanpo:v:79:y:2023:i:c:p:610-633
    DOI: 10.1016/j.eap.2023.06.032
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    More about this item

    Keywords

    Trade liberalization; Growth effect; Entry and exit; Pollution havens hypothesis; Heterogenous firm; Sustainable development;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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