Aspects of the Theory of Environmental Policy in Developing Countries

We examine two issues pertaining to the conduct of environmental policy in developing countries (DCs). First, when faced with a self-financing constraint, should an environmental authority (EA) raise/lower pollution taxes over time or should it run a deficit/surplus? Second, given recent findings regarding the time inconsistency of optimal environmental policy, should an EA make its preferences about the relative benefits of environmental protection versus production public, or should it keep its preferences private? Our paper shows that when faced with a self-financing constraint, it is optimal for the EA to run a deficit/surplus. Second, social losses are lower when this EA keeps its preferences private