The Growth-Environment Trade-off: Horizontal vs Vertical Innovations
AbstractThis paper explores the trade-off between economic growth and environmental quality along two paradigms of endogenous growth theory: variety expansion (HIP) and quality improvements (VIP). We compare the policies that match the decentralised economies' paths with the optimal "strong sustainable" growth path, characterised by growth in consumption and improvements in environmental quality. Three policy tools are employed: subsidies to monopolists and R&D, and taxes on emissions. The latter is increasing at the optimum, to keep the weight of tax revenues over output constant. All policy tools equal, the growth rate is higher in the VIP than in the HIP. The optimal subsidy to R&D is therefore greater and the cumulative loss in output smaller under HIP than the VIP.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.34.
Date of creation: Mar 1999
Date of revision:
Pollution; Endogenous Growth; Sustainable Development;
Find related papers by JEL classification:
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
This paper has been announced in the following NEP Reports:
- NEP-AGR-1999-06-08 (Agricultural Economics)
- NEP-ALL-2004-06-13 (All new papers)
- NEP-DEV-1999-06-08 (Development)
- NEP-ENE-1999-06-08 (Energy Economics)
- NEP-ENV-1999-06-08 (Environmental Economics)
- NEP-IND-1999-06-08 (Industrial Organization)
- NEP-INO-2004-06-13 (Innovation)
- NEP-TID-1999-07-12 (Technology & Industrial Dynamics)
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