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Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences

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  • Turnovsky, Stephen J.
  • Monteiro, Goncalo

Abstract

We examine the effects of both consumption and production externalities on capital accumulation and economic performance under time non-separable preferences and a non-scale production technology. We show that a consumption externality in isolation has long-run distortionary effects if and only if labour is supplied elastically. With fixed labour supply, it has only transitional distortionary effects, though it may generate long-run distortions through its interaction with the production externality. Production externalities always generate long-run distortions, irrespective of labour supply. The optimal taxation to correct for the distortions is characterized. Further quantitative insights are obtained by supplementing the theoretical analysis with numerical simulations based on the calibration of a plausible macroeconomic growth model.
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(This abstract was borrowed from another version of this item.)

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  • Turnovsky, Stephen J. & Monteiro, Goncalo, 2007. "Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences," European Economic Review, Elsevier, vol. 51(2), pages 479-504, February.
    • Handle: RePEc:eee:eecrev:v:51:y:2007:i:2:p:479-504
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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