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Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs

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Abstract

We analyze an overlapping generations model in which pollution arises, in an accumulative way, from production. Households do not care directly about the environment, however pollution makes them incur health costs when they are elderly. We show that the presence of pollution makes the economy more likely to be dynamically inefficient. For these cases we analyze two kinds of tax scheme: one based on production taxes and the other based on capital and wage taxes. We show how to design both schemes in order to put the economy into the golden rule allocation. We also show that under the production tax scheme young and elderly agents pay less taxes (or receive more transfers) than under the capital and wage tax system.

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Bibliographic Info

Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/38.

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Length: 35 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cea:doctra:e2004_38

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Keywords: Dynamic inefficiency; Externalities; Health costs; Overlapping generations; Pollution; Taxes.;

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  1. Padilla, Emilio, 2002. "Intergenerational equity and sustainability," Ecological Economics, Elsevier, vol. 41(1), pages 69-83, April.
  2. Ono, Tetsuo & Maeda, Yasuo, 2002. "Sustainable development in an aging economy," Environment and Development Economics, Cambridge University Press, vol. 7(01), pages 9-22, February.
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  9. Edmond S. Phelps, 1964. "Second Essay on the Golden Rule of Accumulation," Cowles Foundation Discussion Papers 173, Cowles Foundation for Research in Economics, Yale University.
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  12. Gangadharan, Lata & Valenzuela, Ma. Rebecca, 2001. "Interrelationships between income, health and the environment: extending the Environmental Kuznets Curve hypothesis," Ecological Economics, Elsevier, vol. 36(3), pages 513-531, March.
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  15. Quah, Euston & Boon, Tay Liam, 2003. "The economic cost of particulate air pollution on health in Singapore," Journal of Asian Economics, Elsevier, vol. 14(1), pages 73-90, February.
  16. JOUVET, Pierre-André & MICHEL, Philippe & VIDAL, Jean-Pierre, 1997. "Intergenerational altruism and the environment," CORE Discussion Papers 1997041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Howarth, Richard B, 1998. " An Overlapping Generations Model of Climate-Economy Interactions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 575-91, September.
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Cited by:
  1. DAO, Nguyen Thang & DAVILA, Julio, 2011. "Implementing steady state efficiency in overlapping generations economies with environmental externalities," CORE Discussion Papers 2011031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Xavier Pautrel, 2009. "Health-enhancing Activities and the Environment: How Competition for Resources Makes the Environmental Policy Beneficial," Working Papers 2009.111, Fondazione Eni Enrico Mattei.
  3. Constant, Karine & Nourry, Carine & Seegmuller, Thomas, 2014. "Population growth in polluting industrialization," Resource and Energy Economics, Elsevier, vol. 36(1), pages 229-247.
  4. Basseti, Thomas & Benos, Nikos & Karagiannis, Stelios, 2010. "How policy can influence human capital accumulation and environment quality," MPRA Paper 21754, University Library of Munich, Germany.
  5. Emin Gahramanov, 2009. "Tax Evasion and Dynamic Inefficiency," Economics Bulletin, AccessEcon, vol. 29(1), pages 437-443.
  6. Dimitrios Varvarigos, 2013. "Economic Growth, Health, and the Choice of Polluting Technologies: The Role of Bureaucratic Corruption," Discussion Papers in Economics 13/22, Department of Economics, University of Leicester.
  7. Dimitrios Varvarigos & Intan Zakaria, 2013. "Endogenous fertility in a growth model with public and private health expenditures," Journal of Population Economics, Springer, vol. 26(1), pages 67-85, January.
  8. Wei-Bin Zhang, 2013. "Dynamic Interactions among Growth, Environmental Change, Habit Formation, and Preference Change," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, vol. 3(1), pages 3-25, December.
  9. Pautrel, Xavier, 2009. "Pollution and life expectancy: How environmental policy can promote growth," Ecological Economics, Elsevier, vol. 68(4), pages 1040-1051, February.

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