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Pollution effects on preferences: A unified approach

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  • Stefano Bosi
  • David Desmarchelier
  • Lionel Ragot

Abstract

In this paper, we introduce a unified Ramsey model where pollution has an impact on preferences and affects both consumption demand and labor supply. Pollution comes from production activities and is viewed as a stock variable with a strong inertia. A government is introduced and levies a proportional tax on production to finance depollution expenditure. We find two interesting results when pollution raises the consumption demand (compensation effect). First, in the long run, a higher green‐tax rate increases the pollution level at the steady state (green paradox) when pollution raises the labor supply (disenchantment effect). Second, in the short run, local indeterminacy can arise through a Hopf bifurcation when pollution lowers the labor supply (leisure effect) even if pollution has a strong inertia.

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  • Stefano Bosi & David Desmarchelier & Lionel Ragot, 2019. "Pollution effects on preferences: A unified approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(3), pages 371-399, June.
    • Handle: RePEc:bla:jpbect:v:21:y:2019:i:3:p:371-399
    DOI: 10.1111/jpet.12348
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    Cited by:

    1. Amir, Rabah & Gama, Adriana & Maret, Isabelle, 2019. "Environmental quality and monopoly pricing," Resource and Energy Economics, Elsevier, vol. 58(C).
    2. Sugata Ghosh & Trishita Ray Barman & Manash Ranjan Gupta, 2020. "Are short‐term effects of pollution important for growth and optimal fiscal policy?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1262-1288, September.
    3. Simone Marsiglio & Marco Tolotti, 2020. "Motivation crowding‐out and green‐paradox‐like outcomes," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1559-1583, September.
    4. Rabah Amir & Joana Resende & Bernard Sinclair‐Desgagné, 2020. "Introduction to the thematic issue on “Regulation in health, environmental and innovation sectors”," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 1740-1745, December.

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