“Corruption, Pollution and Technology Transfer”

Chiu Yu Ko, National University of Singapore

Bo Shen, Wuhan University

Xuyao Zhang, National University of Singapore 

We study the optimal environmental tax under the possibility of corruption and licensing of a clean technology. In a environment-oriented country, the firm with dirty technology may choose to bribe the bureaucrat to mislead the actual emission, rather than adopt the clean technology. Government should set a very high environmental tax, and corruption may improve social welfare in comparing with licensing. Higher wage for bureaucrat could effectively reduce corruption, but also hinder the incentive for the clean firm to license the technology. Technology transfer is more likely to occur in an output-oriented country. Government should set a low tax rate to induce high incentive for the license and adoption.