Abstract. 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.

Keywords: Pollution; Lobby payment; Corruption; Pollution tax; Economic growth.