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Stochastic Pollution and Environmental Care in an Endogenous Growth Model

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  • Soretz, Susanne

Abstract

This paper analyzes the impact of pollution and abatement policy within a stochastic endogenous growth model. The agents have environmental preferences, but they neglect their individual contribution to aggregate abatement. Therefore, environmental care is done by the government and financed via income taxation and government bonds. Equilibrium growth depends on environmental preferences, perception of aggregate capital and risk aversion. Environmental care as well as fiscal policy are analyzed. Due to environmental preferences and partial anticipation of the dependence between aggregate and individual capital, government debt influences equilibrium growth. Hence, income taxation has an additional indirect impact on accumulation through the simultaneous adjustment of portfolio choice. From numerical simulation it can be concluded that the optimal income tax rate decreases with the perception of the influence of individual on aggregate capital. In contrast, the impact of environmental preferences and uncertainty on optimal financing is ambiguous.

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File URL: http://www3.wiwi.uni-hannover.de/Forschung/Diskussionspapiere/dp-259.pdf
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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover with number dp-259.

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Length: 23 pages
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:han:dpaper:dp-259

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Keywords: pollution; endogenous growth; uncertainty; taxation;

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References

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  1. Larry E. Jones & Rodolfo E. Manuelli, 2001. "Endogenous Policy Choice: The Case of Pollution and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 369-405, July.
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  3. Stephen Turnovsky, 1998. "On the Role of Government in a Stochastically Growing Open Economy," Discussion Papers in Economics at the University of Washington 0073, Department of Economics at the University of Washington.
  4. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  5. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  6. Frederick Ploeg & Cees Withagen, 1991. "Pollution control and the Ramsey problem," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(2), pages 215-236, June.
  7. Grossman, Gene M & Krueger, Alan B, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 353-77, May.
  8. Raymond Gradus & Sjak Smulders, 1993. "The trade-off between environmental care and long-term growth—Pollution in three prototype growth models," Journal of Economics, Springer, vol. 58(1), pages 25-51, February.
  9. Gerhard Glomm & B. Ravikumar, 1994. "Growth-Inequality Trade-Offs in a Model with Public Sector R&D," Canadian Journal of Economics, Canadian Economics Association, vol. 27(2), pages 484-93, May.
  10. Turnovsky, Stephen J, 1993. "Macroeconomic Policies, Growth, and Welfare in a Stochastic Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 953-81, November.
  11. Edwards, John H. Y., 1990. "Congestion function specification and the "publicness" of local public goods," Journal of Urban Economics, Elsevier, vol. 27(1), pages 80-96, January.
  12. Stephen Turnovsky, 1998. "Fiscal Policy, Elastic Labor Supply, and Endogenous Growth," Discussion Papers in Economics at the University of Washington 0068, Department of Economics at the University of Washington.
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  14. Clemens, Christiane & Soretz, Susanne, 1997. "Welfare Effects of Income Taxation in a Model of Stochastic Growth," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-210, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  15. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
  16. Stephen Turnovsky, 1995. "Optimal Tax Policy In A Stochastically Growing Economy," The Japanese Economic Review, Japanese Economic Association, vol. 46(2), pages 125-147, 06.
  17. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  18. Eaton, Jonathan, 1981. "Fiscal Policy, Inflation and the Accumulation of Risky Capital," Review of Economic Studies, Wiley Blackwell, vol. 48(3), pages 435-45, July.
  19. Corsetti, Giancarlo, 1997. "A portfolio approach to endogenous growth: equilibrium and optimal policy," Journal of Economic Dynamics and Control, Elsevier, vol. 21(10), pages 1627-1644, August.
  20. Fisher, Walter H & Turnovsky, Stephen J, 1998. "Public Investment, Congestion, and Private Capital Accumulation," Economic Journal, Royal Economic Society, vol. 108(447), pages 399-413, March.
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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.
  2. Susanne Soretz, 2007. "Efficient Dynamic Pollution Taxation in an Uncertain Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(1), pages 57-84, January.
  3. Azomahou, Theophile & Mishra, Tapas, 2009. "Stochastic environmental effects, demographic variation, and economic growth," MERIT Working Papers 016, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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