Globalization enhances competition between countries and regions to attract firms, secure jobs, and over time, sustain economic development. An important issue is the use of environmental standards as a source of firms¿ attraction and economic development. Policymakers in high-income countries and intermediate or low-income countries have a strategic incentive to cut their business taxes and relax environmental standards to attract footloose firms at the expense of their competitors. However, the benefits of economic development have increasingly been brought into question over the last decades, especially in developed countries, on the grounds that a concentration of industrial activities pollutes, not only in the same jurisdiction as the polluting activities, but also in neighboring ones and even in more distant countries, since pollutants can be transported over hundreds, even thousands of kilometers. These considerations have opened the door to the analysis of how competition among different countries to attract capital affects global pollution. The proposed research aims to analyze how tax competition and environmental agreements are interconnected, from a theoretical and empirical point of view. The approach of the analysis is twofold: first, we develop a theoretical model of competition between a set of rich (high-income) countries and a set of poor (intermediate or low-income) countries, that are assumed to compete over corporate tax rates and environmental standards in the context of increasing capital mobility and concerns over globalization and cross-border pollution; second, we present a novel empirical analysis that investigates via a quasi-experimental causal design how Green local governments influence environmental outcomes by regulation and local taxes, by constructing a new and original dataset using Italian municipal data.
