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CHAPTER TWELVE
The Public Sector in the Global Economy
I. Fundamental Issues
1. In what ways do government regulators seek to safeguard the interests of consumers?
2. How do the world’s governments protect rights to intellectual property?
3. What are international externalities and global public goods, and what can national governments or
multinational institutions do about them?
4. How can the world’s nations protect the global environment?
5. How does increased globalization complicate the efforts of governments to finance their activities?
II. Chapter Outline
1. Protecting Consumer and Producer Interests in the Global Economy
a. Protecting Consumers — Is There Common Ground?
b. Online Globalization: Are Privacy Protection and Online Protectionism Synonyms in the
European Union?
c. Management Notebook: The U.S. Drug-Import Ban — Protecting Consumers from Inferior
Medicines, or Pharmaceutical Firms from Foreign Competition?
d. Safeguarding Intellectual Property Rights
e. Visualizing Global Economic Issues: The Trade-Off in Patent Protection
f. Online Globalization: Does the U.S. Patent and Trademark Office Know What It’s Doing?
2. Dealing with Market Failures — Should Regulators Go Global?
a. Are Market Externalities Bounded By Borders?
b. Online Globalization: A French Judge Combats an International Externality
c. Visualizing Global Economic Issues: Correcting International Externalities via Multilateral
Interventions
3. Protecting the Global Environment — A Multinational Problem with Multilateral Solutions?
a. Public Good Aspects of the Global Environment
b. Alternative Approaches to Solving the World’s Environmental Problems
c. Visualizing Global Economic Issues: Determining How Much to Reduce Pollution
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4. Funding the Public Sector — Globalization and International Tax Competition
a. The Growing International Rivalry for Tax Revenues
b. Globalization and Tax Competition
c. Visualizing Global Economic Issues: The Static Prescription for Dealing with a Shrinking Tax
Base
d. Visualizing Global Economic Issues: The Dynamic View’s Bad News for Efforts to Attain a TaxRevenue Goal with a Declining Tax Base
e. Management Notebook: Fighting Over Capital Flows in the European Union
f. Online Globalization: Should U.S. Internet Sellers Have to Collect Taxes on Behalf of European
Governments?
5. Questions and Problems
III. Chapter in Perspective
This chapter explores the role of governments in providing consumer protection, providing protection for
intellectual property rights, limiting externalities, providing public goods and environmental protection,
and funding the whole range of activities. The difficulties in rationalizing different laws and policy aims
in different countries are first discussed. Market failures and positive and negative externalities are
considered next and the need for multilateral solutions to deal with international spillovers. The concepts
of public goods, merit goods and common resources are introduced along with the free rider problem.
The extent to which the global environment can and cannot be considered a public good is considered and
reasons why many nongovernmental organizations oppose international trade are discussed (and why
some support it). The final section of the chapter presents the static and dynamic theories of tax revenues
and introduces the concepts of tax competition between countries and the growing trend toward
multilateral tax agreements that essentially form tax cartels. The text has many critical analysis questions
that allow students to apply the concepts covered.
IV. Teaching Notes
1. Protecting Consumer and Producer Interests in the Global Economy
a. Protecting Consumers — Is There Common Ground?
Business transactions throughout the first half of the twentieth century and before were governed
by the rule of “caveat emptor” or “buyer beware.” As the number of product liability lawsuits
today indicates, consumers have much more protection now than in the past. Consumer
protection is needed for three reasons:
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


In every business transaction there is potential asymmetric information, with either the
seller or the buyer having access to different information than the other party. Consumer
protection laws provide recourse when material information is withheld. Asymmetric
information gives rise to two more related problems:
Adverse selection is the tendency for manufacturers of the lowest quality products to engage
in the greatest amount of product misrepresentation because they have the greatest incentive
to do so.
Moral hazard is the potential for a seller (or buyer) to act in a different manner after the
transaction is completed than what was agreed to or expected before the transaction was
completed.
b. Online Globalization: Are Privacy Protection and Online Protectionism Synonyms in the
European Union?
For Critical Analysis: Which residents of Europe gain or lose if the costs of meeting the
Data Protection Directive discourage a significant number of U.S. firms from offering to sell
their products online in Europe?
Online buyers in Europe lose and online sellers in Europe gain, because the Data Protection
Directive provides a significant entry barrier that prevents U.S. (and other country’s sellers) from
entering the European online market. Intentionally or not the Data Directive is a form of
protectionism for European online sellers.
c. Management Notebook: The U.S. Drug-Import Ban — Protecting Consumers from Inferior
Medicines, or Pharmaceutical Firms from Foreign Competition?
For Critical Analysis: Why is it likely to be difficult to balance the gains from consumer
protection with gains from trade?
Consumer protection laws can provide significant barriers to entry, so industry participants have a
vested interest in preserving them. Consumers generally prefer lower cost and greater variety so
their advocacy groups will prefer allowing more trade. Policymakers have to be careful,
however, because international trade does increase asymmetric information and the related
adverse selection and moral hazard problems. Enforcement of domestic consumer rights is also
much more difficult when dealing with foreign sellers not under U.S. jurisdiction.
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d. Safeguarding Intellectual Property Rights
The three main forms of protection for intellectual property rights are:



Copyrights, which grant legal title and the right to distribute, perform or otherwise display
and disseminate creative works including articles, books, software and recordings.
Trademarks, which grant a company legal title and exclusive use of a word or symbol that
identifies its product. (See Chapter 11 of the IM for recent values of several large brands).
Patents, which grant the inventor exclusive rights to manufacture, use and market an
invention for a specified time period.
Teaching Tip:
Innovations can take various forms. Some innovations are the prototypical inventions; some are
new theories of management or breakthroughs in the physical sciences. Many innovations
improve production processes and these are often generated by employees. This is one reason
why employee empowerment and rewards for performance, competition among individual
employee units and consensus management within units have become increasingly prevalent.
These characteristics contribute to innovation.
By definition, an innovation results in something unique. Intellectual property rights provide a
barrier to entry that protects the innovator and allows him or her to earn monopoly profits for a
time. Many innovators have risked large amounts of time and money in the hopes of generating a
profitable outcome. The monopoly profits provide the incentive for the creator to make the
innovation and to disseminate the innovation to others. Without these economic profits, many
innovations would not occur, or would not be made publicly available. In a utopian altruistic
society, intellectual property rights protection would not be needed and social welfare would be
increased relative to the system we have today because there would not be a time period where
the innovator earned monopoly profits, but we don’t live in that kind of society.
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Today many nations abide by international standards of intellectual property rights established by
the multilateral agreement called the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS). TRIPS establishes three standards:
 50-year minimum copyright protection
 20-year minimum patent protection
 Standard rules for international trademark protection.
Many developing nations have agreed to meet the TRIPS standards by 2006 (most developed
nations already do so because it is to their benefit). Developing nations may suffer short-term
losses by joining TRIPS. They may do so anyway though to avoid potential sanctions from the
United States and other developed nations and in the hopes of attracting more foreign capital,
particularly FDI.
Parallel imports (gray-market imports of goods transshipped to one country legally, but then
transported and sold in a third country by an unauthorized dealer) are goods sold without the
permission of the intellectual property owner and may erode the value of other sales.
Teaching Tip:
Levi Strauss has experienced problems similar to parallel imports in which Levi jeans
(immensely popular in many overseas markets) trade in gray markets, usually at inflated prices.
Levi does not receive any of the proceeds and is concerned with the occurrence of unauthorized
transactions taking place without their permission. The more general concern is often that highprice goods wind up being sold (or copied and sold) in discount markets, eroding the brand value
of legitimately sold products. In countries, such as Taiwan, which in the past did not recognize
copyright protections, many books were illegally (by U.S. standards) copied and sold at a
discount. Authors and original publishers received no royalties.
e. Visualizing Global Economics Issues: The Trade-Off in Patent Protection
For Critical Analysis: If the inventor who receives a patent lives in another country, then
what area in the figure constitutes an international resource transfer resulting from
granting global patent protection to that inventor?
The area of a rectangle with a height equal to PM-PPC and a base equal to QM represents the wealth
transfer. The remaining triangular portion of the lost consumer surplus is a deadweight loss.
Note that the entire lost consumer surplus is an opportunity loss, not a cash outlay.
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Online Globalization: Does the U.S. Patent and Trademark Office Know What It’s Doing?
For Critical Analysis: Analysts’ estimates of the patent royalties that DE Technologies
might receive were based on total trade processed using computer links in the absence of
payment of fees to DE Technologies. Why did some economists argue that these estimates
probably were too high? (Hint: Remember the law of demand: An increase in the price of
any item reduces the quantity demanded.)
The law of demands states that the greater the price of the service, the lower the resulting
demand. One cannot take the preexisting quantity times the fee and obtain a proper estimate of
the royalties because the demand for the service would fall once a fee was implemented.
2. Dealing With Market Failures — Should Regulators Go Global?
A market failure occurs when the normal market solution fails to arrive at a socially optimal
quantity of output and price. The failure could imply that the outcome was inefficient, socially
unacceptable or in violation of accepted principles. Market failures arise when there are externalities.
Externalities are spillover effects that affect the welfare of entities that are not principles in the
transaction. There are two types of externalities:
 Negative externalities occur when there is some social cost in the production (or sale) of the
good or service that is not included in the price. As a result, the optimal supply curve for society
is above the producer’s supply curve, too many resources are thus input into that industry and
industry output is too high relative to the socially optimum outcome. The classic example is a
firm that is polluting when the firm’s product price does not include the cost of pollution cleanup.
In this case the firm’s actual profit is greater than its true economic profit. The remedies typically
require government intervention such as requiring the firm to stop polluting and pay for the clean
up, establishing industry standards to limit pollution, taxing the firm to raise the product price, or
making payments to affected external constituencies.
 Positive externalities occur when there is some social benefit in the production (sale or
distribution) of the good or service that is not included in the price. In this case, too few
resources are thus input into that industry and industry output is too low relative to the socially
optimum outcome. The classic example of a positive externality is a vaccine that can help stop
the spread of a disease. Society receives additional benefits from widespread distribution of the
vaccine, and the socially optimum output of the vaccine may be greater than the market solution.
The remedies typically include subsidies to the producer, direct government intervention to
produce and distribute the vaccine, and/or encouraging more of the populace to be vaccinated via
subsidies to the public or via education and advertisement. The purpose is to get the demand up
to the socially optimal level.
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Teaching Tip:
Basic research is another area that generates many positive externalities. Understanding physical and
social properties contributes to the overall knowledge base and benefits societies in many ways, but
its value often cannot be captured by any one firm. As a result, the U.S. university system subsidizes
much basic (and applied) research. Government funding for chip research and funding for research
on the human genome are other recent examples.
a. Are Market Externalities Bounded by Borders?
Some externalities affect only members of one country but many affect multiple countries as in
the case of acid rain and spread of diseases, etc. These are called international externalities,
and solutions for these problems require international cooperation between governments and their
agents.
Public goods are any good (or service) that meet the following three criteria:
 They can be consumed by many people at once.
 The marginal cost of an additional individual consuming the good is zero.
 It is impossible or prohibitively expensive to exclude one individual and not others from
using the good, even if someone does not contribute to funding its contribution.
Citing examples of public goods can spark debate because many goods meet one or two of these
criteria, usually the first two, but not all three. Examples that most people would agree upon
generally include national defense, police protection, forest fire suppression, flood control, ocean
pollution cleanup, protection of the ozone layer, and efforts to predict natural disasters. Some of
these are undoubtedly global public goods. Global public goods are public goods that benefit
people from multiple nations simultaneously. Merit goods (goods and services that a society
deems should be provided to its citizens) are not necessarily public goods. They will usually fail
to meet the third criteria. Health care is a good example. A free rider is one who partakes of a
good without contributing his or her fair share to pay for the provision of that good. He or she
relies on others to pay. The free rider problem is the main reason why tax systems are
compulsory. It is important to understand that public goods and merit goods are not necessarily
free goods and provision has to be made for their funding. A clean environment, for instance,
could arguably be considered a global public good, but it is certainly not a free good.
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Teaching Tip:
Discussion questions for the students:
1. Are secondary and college education public goods in the U.S. and elsewhere? If not, are they
merit goods? Should they be? Do they add to a nation’s comparative advantage?
2. Is a monopoly a negative externality? Should the government intervene in such cases? Why
or why not?
3. Many college professors have job descriptions that include up to 50 percent or even 75
percent research; research that is subsidized by your tuition payments and your parent’s tax
dollars. Without the research component of their jobs, professors could spend much more
time on their classes and in assisting both students and businesses. Is this money well spent?
Why or why not?
4. Is a tax evader a free rider (tax evasion is illegal)? Is someone who purposefully, but legally
shifts operations to a low tax rate country in which they are not a resident a free rider or
simply a smart businessperson?
b. Online Globalization: A French Judge Combats an International Externality
For Critical Analysis: How might a government go about determining that a negative
international externality exists and should be corrected?
If there is measurable harm to a nation’s citizens, then the government may act. Acid rain and
other sources of pollution might fit this category. Trade in prohibited materials such as weapons
and other dangerous materials would be relatively easy to identify as an externality if discovered.
Government policymakers will have to realize, however, that local industries have a strong
rationale to claim an externality exists that may benefit them. In terms of identification, if the
good or service in question is traded in other markets then an attempt to compare supply and
demand conditions could be made. With a negative externality, the price of the good in question
does not reflect its true cost to society and the quantity produced is too high relative to the social
optimum.
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c. Visualizing Global Economics Issues: Correcting International Externalities via
Multilateral Interventions
For Critical Analysis: Why do economists tend to prefer price-based approaches to
government interventions in markets over efforts to force producers to provide specific
quantities?
It is generally believed that policymakers can more successfully influence the price, via taxation
perhaps, than they can set the appropriate quantity. Moreover, the tax approach generates
revenue for the government, which can be used to mitigate the effects of the externality. In some
cases, it may be possible to develop markets that then provide information about the costs
involved. Firms can trade pollution rights (the right to pollute up to a certain maximum) among
themselves, and market prices of these rights reveal their value.
3. Protecting the Global Environment — A Multinational Problem with Multilateral Solutions?
a. Public Good Aspects of the Global Environment
Common property is a nonexclusive resource owned by everyone (and hence owned by no one).
Some land is common property, but much of the world’s land is claimed by someone. These
resources can have external effects on other people’s private property and on everyone’s
enjoyment of common property.
Parts of the global environment such as the atmosphere and the high seas fit the definition of
global common property. Some people believe that the entire global environment is common
property and is also a public good. People who believe this way feel that national governments
and multilateral organizations should act to maintain or safeguard the world’s environment.
Some even believe this should be governments’ top priority. Land does not fit the definition of a
public good, however. The text points out that the atmosphere and the water in the oceans do
seem to be public goods and there has been relatively more success in protecting the world’s air
and water from pollution, as compared to land, due to multilateral efforts. Following this line of
reasoning, we can reasonably expect nations to accede to common standards of air and water, but
not to land. Efforts to protect the land will instead probably take the form of limiting specific
externalities, hopefully before they occur, and if not in clean-up efforts afterward.
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b. Alternative Approaches to Solving the World’s Environmental Problems
Most economists would agree that the appropriate goal is the “socially optimal” level of pollution
and this level is not likely to be the zero pollution (or pristine) level. We know that pollution
control results in decreasing marginal benefits and increasing marginal costs to achieve higher
levels of pollution abatement. As in all decisions that involve costs and benefits, we can posit
that the optimal level of pollution is the one where the marginal benefit of pollution abatement
just equals the marginal cost of reducing pollution to that level
Some nongovernmental organizations believe that global trade and investment contributes to
environmental degradation. The arguments are that:
1. International trade increases the potential for market failures that degrade the environment.
2. International trade forces local firms to compete with foreign firms. Due to the additional
competition, governments are likely to lower their environmental standards to assist their
domestic industries in maintaining or building comparative advantage.
3. International trade leads to higher economic growth rates that are unsustainable in the long
run.
4. Multilateral trade agreements focus on the income benefits of trade without appropriately
considering the effects on the environment.
Many economists and some nongovernmental organizations would disagree with these four
statements by positing their own four-point pro-trade stance:
1. Gains from trade raise living standards in developing nations. Once living standards move
above subsistence levels, people are then more cognizant of environmental problems and
more willing to tackle them.
2. Opening markets requires domestic industries to compete and to operate more efficiently.
Also, FDI tends to be made by highly competitive foreign firms who are anxious to prove
themselves to be good citizens and are unlikely to pollute.
3. Trade and FDI speed the process of innovation that can lead to higher sustainable economic
growth rates.
4. Multilateral trade agreements provide forums where environmental concerns can be shared
and implemented across countries.
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c. Visualizing Global Economics Issues: Determining How Much to Reduce Pollution
For Critical Analysis: What factors are likely to affect how close C* is to 100 percent in
Figure 12-3?
C* is the optimal level of water cleanliness in a lake and is found as the intersection of the
marginal cost and marginal benefit of pollution abatement curves. The steeper the marginal cost
curve the further from 100 percent C* is likely to be, ceteris paribus. The steepness of the
marginal cost curve will depend on the sources of pollution around the lake and the associated
cleanup costs. Likewise the steeper the marginal benefit curve the further from 100 percent C* is
likely to be. Recall that pollution abatement normally exhibits declining marginal benefits,
although the shape and position of the marginal benefit curve probably is somewhat subjective
and different clientele would likely place different marginal benefits on a given level of water
cleanliness.
4. Funding the Public Sector — Globalization and International Tax Competition
a. The Growing International Rivalry for Tax Revenues
How does a government fund all of its activities? One major source of funding is tax revenue.
Governments attempt to tax many activities. For instance, governments tax personal and/or
corporate income, business sales, property, and/or consumption.
Teaching Tip:
Links to information on specific tax rates and tax bases for 70+ foreign countries can be found at
http://www.taxsites.com/international.html#students. Professors at Harvard University have put
together what is called The Basic World Tax Code (BWTC) to assist developing countries in
putting together a reasonable tax code. The BWTC is available as a free download at
www.tax.org. It discusses the tax code and methods of enforcement and provides commentary on
the proposed rules. There is also a good discussion in the introduction on the need to avoid
protectionist tax policies in order to help foster efficient industries in the local economy.
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The text presents the static and dynamic views of taxation. In both cases tax revenue is found as
the tax rate times the tax base. The tax rate is the percentage of the tax base owed to the
government. The tax base is the value that is being taxed. Some entities employ a value added
tax (VAT), which are taxes assessed at each stage of production in which value is added to a good
or service. For instance, the VAT is generally about 5 percent in Taiwan. Average tax rates on
consumption, capital and labor for the U.S., Japan and the EU are presented in Text Figure 12-4.
Under the static view of taxation, hitting a given target level of tax revenue (T) is very
straightforward, since T = t  B where t = tax rate and B = tax base. The more realistic dynamic
view recognizes that taxable entities work to minimize their tax liability; hence, the tax base will
be inversely related to the tax rate to the extent that entities can shift earnings offshore to lower
tax rate countries, delay recognizing capital gains or find other tax shelters when tax rates rise.
b. Globalization and Tax Competition
Some nations are tax havens levying virtually no taxes, including the Bahamas, the Cayman
Islands, Luxembourg and Switzerland, etc. Other countries purposefully charge only low taxes.
Note that low taxation is a comparative advantage for a country. Countries that set low tax rates
to attract business are engaging in tax competition. OECD countries have begun to respond to
tax competition by threatening sanctions against countries that engage in such activities. Well,
they are threatening sanctions against non-OECD countries that engage in such activities, a
necessary caveat since Luxembourg, Switzerland, the UK and the U.S. (all OECD members)
violate their own criteria about tax competition. Tax competition can worsen the free rider
problem, but like all competition, it can encourage the participants, governments in this case, to
be more efficient and less profligate. Like the other problems mentioned in this chapter, tax
competition can be eliminated (or limited) only by multilateral cooperation among taxing
authorities.
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c. Visualizing Global Economics Issues: The Static Prescription for Dealing with a Shrinking
Tax Base
For Critical Analysis: If a nation experiences considerable economic growth that results in
an increase in its income-tax base, what does the static view indicate its government should
do to maintain its tax revenues at a level equal to is tax-revenue goal? Why might a
government be tempted to do nothing?
In this case, the government should cut the tax rate to maintain the same tax revenue. The
government may do nothing because it will then receive more revenue. In fact, this is what will
happen. Rationally, the government may do nothing in order to build a reserve fund to be able to
draw down during poorer economic times.
d. Visualizing Global Economics Issues: The Dynamic View’s Bad News for Efforts to Attain
a Tax—Revenue Goal with a Declining Tax Base
For Critical Analysis: Within the context of the dynamic view, is it possible that the
domestic government could actually push up its tax collections by reducing its tax rate?
If a reduced tax rate results in a sufficient increase in the tax base then it is possible that total tax
revenue would rise when the government reduced the tax rate. This is probably most likely to
happen in a developing economy that has had prohibitively high tax rates and has developed a
gray market to hide taxable transactions. When the government lowers the tax rate, the
underground economy then can move “above ground.” Very high tax rates and perceptions of
unfairness (as well as lack of enforcement) lead to low tax bases in many developing countries.
e. Management Notebook: Fighting Over Capital Flows in the European Union
For Critical Analysis: Based on the estimates of Gorter and Parikh and assuming all other
factors are equal, which EU nations would you predict are most likely to experience the
largest capital inflows?
Gorter and Parikh found that for the EU, a 100 basis point reduction in the tax rate on capital
below the EU average led to about a 4 percent increase in FDI. Text Figure 12-7 lists marginal
tax rates on capital in the EU. The countries with the lowest rates are (from low to high) Greece,
Ireland, Italy, Sweden and Finland, so according to Gorter and Parikh these countries should be
most likely to experience the largest capital inflows. Of course, the ceteris paribus assumption
never holds so one must be careful with these predictions.
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Online Globalization: Should U.S. Internet Sellers Have to Collect Taxes on Behalf of
European Governments?
For Critical Analysis: Should a sales tax or a VAT apply based on the location of the seller
or on the location of the buyer? Why does it matter?
The question matters because the tax rates in the buyer’s and seller’s location are likely to be
different, and charging one or the other will change comparative advantage. Suppose the seller’s
tax rate is lower than the buyer’s tax rate. Charging the seller’s tax rate then puts the buyer’s
domestic competition at a comparative disadvantage because the buyer is now more likely to buy
from the foreign seller.
5. Answers to End of Chapter Questions
1. Common rationales for government regulation relate to asymmetric information problems, such as
adverse selection and moral hazard, an interest in protecting intellectual property rights, and a desire
to limit the unfavorable consequences due to market failures. Of these, concerns about asymmetric
information problems and market failures often motivate consumer-protection regulations.
Governments of different nations may form very different views about the potential scope of such
problems, which could complicate reaching agreement on coordinated efforts to address them.
2. One approach might be to adopt common regulatory standards and then permit trade of regulated
products. This would ensure that consumers in each locale would choose among pharmaceuticals that
are essentially equally safe while permitting competition across borders in the provision of
medications.
3. Satisfying the laws of all fifteen nations could constitute a significant barrier to entry into any one of
them, which could discourage foreign firms from seeking entry into European markets.
4. If this were law, unless foreign producers were willing to incur significant costs entailed in adding
safety labels, their products would be withheld from the market, as would also be true under explicit
quotas.
5. The key is the student’s support for a choice. A student might reasonably argue that patents deserve
most protection, given that they protect inventions that pave the way for broader productive
innovation, but they also might argue that trademarks are most important because they protect a
brand’s value. Alternatively, they might argue in favor of giving copyrights greatest protection,
because they protect the interests of authors who develop basic knowledge.
6. There are two main advantages. One is that in future years developing nations may account for the
development of a greater share of intellectual property. Another is that supporting intellectual
property rights are consistent with broader support of investment that can be beneficial to some
nations.
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7. The definition of a global public good is any good or service that yields benefits to a number of the
world’s people simultaneously, cannot provide benefits to one person without others around the world
deriving benefits at no additional cost, and cannot be withheld from a person who has failed to
contribute to its provision. It is not necessarily difficult to identify a good that benefits people in
more than one country. It is harder, however, to identify a good that provides such benefits to an
additional person at no further cost and the individual can consume without contributing to provision
of the good. Arguably only a limited set of goods, such as radio waves, oceans, and the atmosphere
fully satisfy the definition.
8. A key advantage of extending this policy outside the United States is that establishing a market price
of pollution provides a mechanism for overall pollution to be reduced while maintaining a pricing
system. This avoids the ill effects of arbitrary limitations or prohibitions on pollution. Allowing
firms to trade pollution rights across borders would also allow prices of pollution rights to vary from
country to country. Thus, markets could more efficiently price pollution, taking into account
comparative advantages in addressing pollution problems, potentially giving owners of capital used to
help reduce pollution incentives to move such equipment into nations with major pollution problems.
Disadvantages might arise for countries whose residents prefer no pollution at all, yet reaching a
multilateral consensus might require agreeing to permit some pollution.
9. Some organizations believe that no pollution should be permitted. They are unlikely to be
comfortable with the fact that the “marginal-benefit-equals-marginal-cost” approach typically yields a
positive amount of pollution as socially optimal.
10. Undoubtedly, countries where governments play a major role in the production and direction of goods
and services, and which thereby rely on significant tax collections to fund their operations, will most
desire to coordinate tax policies and avoid “harmful tax competition.” Countries whose residents rely
most on private markets for these activities will be less interested in coordinated taxation efforts.