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Environmental tax policy in a model of growth cycles

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  • Tetsuo Ono

Abstract

The purpose of this paper is to consider environmental taxation which would control emissions of firms in a model of growth cycles. In the model presented below, the economy may experience two phases of growth and environmental quality: “the no-innovation growth regime” and “the innovation-led growth regime”. Aggregate capital and environmental quality remain constant in the no-innovation growth regime, while they perpetually increase in the innovation-led growth regime. The paper shows that the tax plays a key role in determining whether the economy stably converges to one of the two regimes or fluctuates permanently between them. It also shows that there is a critical level of the tax and that the economy obtains higher growth rates of capital and environmental quality by raising (or reducing) the tax if the initial tax is below (or above) the critical level. Copyright Springer-Verlag Berlin Heidelberg 2003

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File URL: http://hdl.handle.net/10.1007/s00199-002-0286-7
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 22 (2003)
Issue (Month): 1 (08)
Pages: 141-168

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Handle: RePEc:spr:joecth:v:22:y:2003:i:1:p:141-168

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Related research

Keywords: Keywords and Phrases: Regime switching; Growth cycles; Economic growth; Environmental tax policy; Overlapping generations model.; JEL Classification Numbers: D62; D91; H20; O11; O30; Q20.;

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Cited by:
  1. Pautrel, Xavier, 2012. "Environmental Policy, Education And Growth: A Reappraisal When Lifetime Is Finite," Macroeconomic Dynamics, Cambridge University Press, vol. 16(05), pages 661-685, November.
  2. Theodore Palivos & Dimitrios Varvarigos, 2010. "Pollution Abatement as a Source of Stabilisation and Long-Run Growth," Discussion Papers in Economics 11/04, Department of Economics, University of Leicester, revised Oct 2010.
  3. Fabien Prieur, 2009. "The environmental Kuznets curve in a world of irreversibility," Economic Theory, Springer, vol. 40(1), pages 57-90, July.
  4. Chu, Hsun & Lai, Ching-Chong, 2013. "Abatement R&D, Market Imperfections, and Environmental Policy in an Endogenous Growth Model," MPRA Paper 52869, University Library of Munich, Germany, revised Nov 2013.
  5. Karine Constant & Marion Davin, 2014. "Environmental Policy and Growth in a Model with Endogenous Environmental Awareness," Working Papers halshs-00964540, HAL.
  6. Chu, Hsun & Lai, Ching-chong, 2014. "Abatement R&D, market imperfections, and environmental policy in an endogenous growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 41(C), pages 20-37.

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