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Environmental Investment and Policy with Distortionary Taxes and Endogenous Growth

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  • Don Fullerton
  • Seung-Rae Kim

Abstract

Recent studies consider public R&D spending that affects abatement knowledge and endogenous growth, distortionary taxes that affect physical and human capital formation, pollution taxes that affect environmental degradation, and regeneration that restores natural capital. Our model combines all of those elements. We show how the combination affects results from each prior model, focusing on two parameters that represent the need for distorting taxes, and the productivity of abatement knowledge relative to pollution. First, either of these two extensions can reverse the prior finding that pollution tax revenue is more than enough to pay for public abatement R&D. Second, tax distortions and externalities substantially alter prior findings that the ratio of public to private capital is based only on output elasticities. Third, our dynamic model affects prior static findings about how other public spending "crowds out" provision of the environmental public good. Fourth, we show whether a greater need for public spending leads to greater increases in the distorting tax or pollution tax. Fifth, while prior research is optimistic that environmental regulation can boost economic growth, we show how it may increase or decrease the growth rate --even if it raises welfare.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12070.

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Date of creation: Mar 2006
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Publication status: published as Fullerton, Don and S.R. Kim. “Environmental Investment and Policy with Distortionary Taxes and Endogenous Growth.” Journal of Environmental Economics and Management (September 2008).
Handle: RePEc:nbr:nberwo:12070

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Citations

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Cited by:
  1. Alexandru MINEA & Pascale COMBES MOTEL & Jean-Louis COMBES & Patrick VILLIEU, 2013. "Deforestation and Seigniorage in Developing Countries: A Tradeoff?," Working Papers 201322, CERDI.
  2. Minoru Nakada, 2010. "Environmental Tax Reform and Growth: Income Tax Cuts or Profits Tax Reduction," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 47(4), pages 549-565, December.
  3. Chu, Hsun & Lai, Ching-chong, 2014. "Abatement R&D, market imperfections, and environmental policy in an endogenous growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 41(C), pages 20-37.
  4. Walid Oueslati, 2013. "Short and Long-term Effects of Environmental Tax Reform," Working Papers 2013.09, Fondazione Eni Enrico Mattei.
  5. Gregmar Galinato, . "The Challenge of Addressing Consumption Pollutants with Fiscal Policy," Working Papers 2014-1, School of Economic Sciences, Washington State University.
  6. Pereira, Alfredo M. & Pereira, Rui M., 2014. "On the environmental, economic and budgetary impacts of fossil fuel prices: A dynamic general equilibrium analysis of the Portuguese case," Energy Economics, Elsevier, vol. 42(C), pages 248-261.
  7. Lopez, Ramon E. & Yoon, Sang Won, 2013. "Sustainable Economic Growth: Structural Transformation with Consumption Flexibility," Working Papers 142561, University of Maryland, Department of Agricultural and Resource Economics.
  8. Mónica Meireles & Isabel Soares & Óscar Afonso, 2010. "Economic Growth, Ecological Technology and Public Intervention," FEP Working Papers 378, Universidade do Porto, Faculdade de Economia do Porto.
  9. Tang, Erzi & Liu, Fengchao & Zhang, Jingjing & Yu, Jiao, 2014. "A model to analyze the environmental policy of resource reallocation and pollution control based on firms' heterogeneity," Resources Policy, Elsevier, vol. 39(C), pages 88-91.
  10. Pascale Combes Motel & Johanna Choumert & Alexandru Minea & Thomas Sterner, 2014. "Explorations in the Environment–Development Dilemma," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 57(4), pages 479-485, April.
  11. Chu, Hsun & Lai, Ching-Chong & Cheng, Chu-Chuan, 2013. "Tax Havens, Growth, and Welfare," MPRA Paper 52878, University Library of Munich, Germany, revised Sep 2013.
  12. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271 Elsevier.
  13. Oueslati, Walid, 2014. "Environmental tax reform: Short-term versus long-term macroeconomic effects," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 190-201.

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