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Growth, welfare and transitional dynamics in an endogenously growing economy with abatement labor

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  • Chen, Jhy-hwa
  • Shieh, Jhy-yuan
  • Chang, Juin-jen
  • Lai, Ching-chong

Abstract

This paper sets up a simple endogenous growth model that highlights the importance of the endogenous labor-leisure choice and the allocation between production labor and abatement labor. We show that, in contrast to the common notion (e.g. [Bovenberg, A.L., Smulders, S., 1996. Transitional impacts of environmental policy in an endogenous growth model. International Economic Review 37, 861-893] and [Bovenberg, A.L., de Mooij, R.A., 1997. Environmental tax reform and endogenous growth. Journal of Public Economics 63, 207-237]), the existence of an environmental production externality is a sufficient (but not necessary) condition for environmental policies to stimulate economic growth if the labor-leisure choice is endogenously determined. In particular, since there are complementarities between public abatement and private abatement, the public abatement expenditure will have a more powerful enhancing effect on economic growth when it is accompanied by more efficient private abatement. This result also leads to a corollary to the effect that it is easier to achieve double dividends in terms of enhancing both growth and welfare if the endogenous labor-leisure choice is taken into account. In our dynamic analysis, we show that if public abatement is substantially large, dynamic indeterminacy may occur despite the absence of a positive labor externality and interestingly, this is more likely to be the case when abatement labor plays a more significant role. Besides, the transitional effects of an increase in public abatement are also investigated.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 3 (September)
Pages: 423-437

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Handle: RePEc:eee:jmacro:v:31:y:2009:i:3:p:423-437

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Abatement labor Environmental externality Public abatement Double dividends;

References

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Citations

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Cited by:
  1. Oueslati, Walid, 2014. "Environmental tax reform: Short-term versus long-term macroeconomic effects," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 190-201.
  2. Franz Wirl, 2011. "Conditions for indeterminacy and thresholds in neoclassical growth models," Journal of Economics, Springer, vol. 102(3), pages 193-215, April.
  3. BRECHET, Thierry & HRITONENKO, Natali & YATSENKO, Yuri, . "Adaptation and mitigation in long-term climate policy," CORE Discussion Papers RP -2479, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Walid Oueslati, 2013. "Short and Long-term Effects of Environmental Tax Reform," Working Papers 2013.09, Fondazione Eni Enrico Mattei.

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