Impact of growth and tax on pollution in the presence of corruption

In the context of international environmental agreements, where both developed and developing countries commit to mitigating ecological risks, this paper develops a theoretical model to examine the growth-pollution nexus in the presence of rent-seeking behavior by a self-interested government and a firm. We analyze two cases: (1) when lobbying transfers are unilaterally determined by the firm, and (2) when they are jointly determined through a Nash bargaining framework. Furthermore, when tax revenues are endogenously allocated to stimulate growth, we find that higher environmental taxes may paradoxically increase pollution in the Nash bargaining case.