Abstract
In this paper, we analyze the effects of the interaction between national and local policies designed to reduce an environmental externality that causes environmental damages both nationally and locally. We formulate a theoretical model to develop hypotheses regarding the combined effects of such policies on the stringency of the local policies and on firms’ emissions reductions. To test our hypotheses, we use actual data for Sweden, where emissions of nitrogen oxides from combustion boilers are subject to a heavy national tax and most are also subject to individual emissions standards set by county authorities. Our analytical findings suggest that the national tax has brought along stricter emission standards. This is confirmed in our data, where emission standards are significantly more stringent when combined with the national tax.
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