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Natural Disasters in a Two-Sector Model of Endogenous Growth

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  • Horii, Ryo

    (Tohoku University and Yale University)

  • Ikefuji, Masako

    (Osaka University)

Abstract

Using an endogenous growth model with physical and human capital accumulation, this paper considers the sustainability of economic growth when the use of a polluting input (e.g., fossil fuels) intensi.es the risk of capital destruction through natural disasters. We .nd that growth is sustainable only if the tax rate on the polluting input increases over time. The long-term rate of economic growth follows an inverted V-shaped curve relative to the growth rate of the environmental tax, and it is maximized by the least aggressive tax policy from among those that asymptotically eliminate the use of polluting inputs. Moreover, welfare is maximized under an even milder environmental tax policy, especially when the pollutants accumulate gradually.

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Paper provided by Yale University, Department of Economics in its series Working Papers with number 86.

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Date of creation: Nov 2010
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Handle: RePEc:ecl:yaleco:86

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Cited by:
  1. Gabriel J. Felbermayr & Jasmin Gröschl, 2013. "Naturally Negative: The Growth Effects of Natural Disasters," CESifo Working Paper Series 4439, CESifo Group Munich.
  2. Horii, Ryo & Ikefuji, Masako, 2014. "Environment and Growth," MPRA Paper 53624, University Library of Munich, Germany.
  3. AKAO Ken-Ichi & SAKAMOTO Hiroaki, 2013. "A Theory of Disasters and Long-run Growth," Discussion papers 13061, Research Institute of Economy, Trade and Industry (RIETI).
  4. Lucas Bretschger & Christos Karydas, 2013. "Optimum Growth and Carbon Policies with Lags in the Climate System," CER-ETH Economics working paper series 13/184, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  5. Jasmin Katrin Gröschl, 2013. "Gravity Model Applications and Macroeconomic Perspectives," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, number 48.
  6. Lucas Bretschger & Alexandra Vinogradova, 2014. "Growth and Mitigation Policies with Uncertain Climate Damage," CEEES Paper Series CE3S-02/14, European University at St. Petersburg, Department of Economics.

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