Environmental policy in majoritarian systems

This paper sheds new light on the determination of environmental tax policies in majoritarian federal electoral systems, such as the U.S., and derives implications for the environmental federalism debate on whether the national or local government should have authority over environmental taxes. In the absence of majority bias, the socially preferred policy would be federal district-level taxation which accounts both for cross-boundary pollution and differences in industry concentration across districts. In majoritarian systems, however, where the legislature consists of geographically distinct electoral districts, the majority party (at the national or state level) favors home districts; depending on the location of polluting industries and the associated damages, the majority party may therefore impose sub-optimally high or low pollution taxes due to a majority bias. Majority bias can influence the social-welfare ranking of alternative environmental tax policies. In some cases, majority bias may make decentralized or federal uniform taxation the preferred solution.