Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs
AbstractWe 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 InfoPaper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/38.
Length: 35 pages
Date of creation: 2004
Date of revision:
Dynamic inefficiency; Externalities; Health costs; Overlapping generations; Pollution; Taxes.;
Other versions of this item:
- Mar�A-José Gutiérrez, 2008. "Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(4), pages 563-594, 08.
- Gutiérrez Huerta, María José, 2002. "Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs," DFAEII Working Papers 2002-23, University of the Basque Country - Department of Foundations of Economic Analysis II.
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-09 (All new papers)
- NEP-DGE-2004-05-09 (Dynamic General Equilibrium)
- NEP-HEA-2004-05-09 (Health Economics)
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