Natural disasters in a two-sector model of endogenous growth
AbstractUsing 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) intensifies the risk of capital destruction through natural disasters. We find 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 of those that asymptotically eliminate the use of polluting inputs. Unavailability of insurance can accelerate or decelerate the growth-maximizing speed of the tax increase depending on the relative significance of the risk premium and precautionary savings effects. Welfare is maximized under a milder environmental tax policy, especially when the pollutants accumulate gradually.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 37825.
Date of creation: Apr 2012
Date of revision:
human capital; global warming; environmental tax; nonbalanced growth path; precautionary saving; risk premium;
Other versions of this item:
- Ikefuji, Masako & Horii, Ryo, 2012. "Natural disasters in a two-sector model of endogenous growth," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 784-796.
- Masako Ikefuji & Ryo Horii, 2006. "Natural Disasters in a Two-Sector Model of Endogenous Growth," Discussion Papers in Economics and Business 06-13, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- Horii, Ryo & Ikefuji, Masako, 2010. "Natural Disasters in a Two-Sector Model of Endogenous Growth," Working Papers 86, Yale University, Department of Economics.
- Ryo Horii & Masako Ikefuji, 2010. "Natural Disasters in a Two-Sector Model of Endogenous Growth," Working Papers 992, Economic Growth Center, Yale University.
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-10 (All new papers)
- NEP-DGE-2012-04-10 (Dynamic General Equilibrium)
- NEP-ENV-2012-04-10 (Environmental Economics)
- NEP-FDG-2012-04-10 (Financial Development & Growth)
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