The Rise of Environmentalism, Pollution Taxes and Intra-Industry Trade

Many industrialised countries have experienced an increase in environmental awareness and support to green lobby groups in past decades. This paper develops a political-economy model to investigate to what extent a rise of environmentalism, via the induced change in political power structures, can successfully encourage higher pollution taxes and reduce pollution. The model focuses on special-interest group politics, intra-industry trade and a transnational environmental externality. The main finding is that a rise of environmentalism is not sufficient to protect the environment when pollution is relatively immobile and environmentalists are sufficiently concerned with environmental damage in other countries than their own.