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Pollution, Mortality and Optimal Environmental Policy

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  • Aditya Goenka
  • Saqib Jafarey
  • William Pouliot

Abstract

We study an overlapping generations economy in which environmental degradation results from economic activity and affects agents' uncertain lifetimes. Life expectancy depends positively on economic activity and negatively on the stock of pollution. This can make the growth-survival relationship convex over some region and lead to two non-trivial steady states, with one is a poverty trap. Uniform abatement taxes can cause the poverty trap to widen while increasing incomes at the high steady state. We also show that the optimal second-best abatement tax is non-homogeneous and increasing in the capital stock, and exhibits a variety of dynamic possibilities: non-existence of a steady state equilibrium, multiplicity of steady state equilibria and optimal policy cycles around some steady states.

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File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/12-05.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 12-05.

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Length: 45 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:bir:birmec:12-05

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Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk
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Related research

Keywords: Overlapping generations model; poverty traps; non-convexities; multiple steady states; pollution; optimal environmental policy; optimal abatement tax;

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References

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  1. 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.
  2. Pautrel, Xavier, 2009. "Pollution and life expectancy: How environmental policy can promote growth," Ecological Economics, Elsevier, vol. 68(4), pages 1040-1051, February.
  3. Raouf, BOUCEKKINE & Bity, DIENE & Théophile, AZOMAHOU, 2007. "A closer look at the relationship between life expectancy and economic growth," Discussion Papers (ECON - Département des Sciences Economiques) 2007043, Université catholique de Louvain, Département des Sciences Economiques.
  4. JOUVET, Pierre-André & PESTIEAU, Pierre & PONTHIERE, Gregory, 2007. "Longevity and environmental quality in an OLG model," CORE Discussion Papers 2007069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Dimitrios Varvarigos, 2010. "On the Joint Dynamics of Pollution and Capital Accumulation," Discussion Papers in Economics 11/05, Department of Economics, University of Leicester.
  6. Shankha Chakraborty, 2002. "Endogenous Lifetime and Economic Growth," University of Oregon Economics Department Working Papers 2002-03, University of Oregon Economics Department, revised 26 Jan 2002.
  7. George Economides & Apostolis Philippopoulos, 2008. "Growth enhancing policy is the means to sustain the environment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 207-219, January.
  8. repec:hal:cesptp:halshs-00318677 is not listed on IDEAS
  9. Xavier Pautrel, 2012. "Pollution, Private Investment in Healthcare, and Environmental Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 334-357, 06.
  10. Mariani, Fabio & Pérez-Barahona, Agustín & Raffin, Natacha, 2009. "Life Expectancy and the Environment," IZA Discussion Papers 4564, Institute for the Study of Labor (IZA).
  11. John, A & Pecchenino, R, 1994. "An Overlapping Generations Model of Growth and the Environment," Economic Journal, Royal Economic Society, vol. 104(427), pages 1393-1410, November.
  12. Dimitrios Varvarigos, 2008. "Environmental Quality, Life Expectancy, and Sustainable Economic Growth," Discussion Papers in Economics 08/19, Department of Economics, University of Leicester.
  13. Evans, Mary F. & Smith, V. Kerry, 2005. "Do new health conditions support mortality-air pollution effects?," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 496-518, November.
  14. George Economides & Apostolis Philippopoulos, 2005. "Should Green Governments Give Priority to Environmental Policies over Growth-Enhancing Policies?," CESifo Working Paper Series 1433, CESifo Group Munich.
  15. Roger D. Peng & Francesca Dominici & Thomas A. Louis, 2006. "Model choice in time series studies of air pollution and mortality," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 169(2), pages 179-203.
  16. Koop, Gary & Tole, Lise, 2004. "Measuring the health effects of air pollution: to what extent can we really say that people are dying from bad air?," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 30-54, January.
  17. Georgios Georgiadis & José Pineda & Francisco Rodríguez, 2010. "Has the Preston Curve Broken Down?," Human Development Research Papers (2009 to present) HDRP-2010-32, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
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Cited by:
  1. Wang, Min & Zhao, Jinhua & Bhattacharya, Joydeep, 2013. "Optimal Health and Environmental Policies in a Pollution-Growth Nexus," Staff General Research Papers 35994, Iowa State University, Department of Economics.

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