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Is growth bad for the environment? Pollution, abatement, and endogenous growth

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  • van Marrewijk, Charles
  • van der Ploeg, Federick
  • Verbeek, Jos

Abstract

The authors investigate the implications of pollution as a byproduct of production and analyze how environmental concern affects the optimal rate of economic growth and optimal government policy. The government must levy taxes on income to finance both productive government spending and abatement activities. It must levy an optimal tax. Too high a tax rate harms prospects for growth and too low a tax rate is bad for the environment. The authors distinguish between two approaches to incorporate the environment into the model stock approach and the flow approach. The flow approach assumes that the level of environmental quality changes instantly if production or abatement levels change (this is relevant for analyzing externalities associated, for example, with noise). The stock approach assumes that pollution and abatement indirectly influence the environment by affecting the rate of change in the environment over time (this is more relevant for analyzing problems of acid rain). They conclude that: win-win situations (in which improvements in economic growth and environmental quality go hand in hand) cannot arise under the flow approach, but can arise under the stock approach - if and only if the intertemporal elasticity of substitution exceeds unity; and maximizing the economy's growth rate is never optimal unless consumers care nothing about the environment.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1151.

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Date of creation: 31 Jul 1993
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Handle: RePEc:wbk:wbrwps:1151

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Keywords: Economic Theory&Research; Environmental Economics&Policies; Economic Growth; Governance Indicators; Public Sector Economics&Finance;

References

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  1. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S103-26, October.
  2. Ploeg, F. van der & Withagen, C.A.A.M., 1991. "Pollution control and the Ramsey problem," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3107039, Tilburg University.
  3. Bovenberg, A Lans & van der Ploeg, Frederick, 1992. "Environmental Policy, Public Finance and the Labour Market in a Second-best World," CEPR Discussion Papers, C.E.P.R. Discussion Papers 745, C.E.P.R. Discussion Papers.
  4. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers, DELTA (Ecole normale supérieure) 90-12, DELTA (Ecole normale supérieure).
  5. Frederick Ploeg & Aart Zeeuw, 1992. "International aspects of pollution control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 2(2), pages 117-139, March.
  6. Gruver, Gene W., 1976. "Optimal investment in pollution control capital in a neoclassical growth context," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 165-177, October.
  7. van der Ploeg, Frederick, 1992. "Temporal risk aversion, intertemporal substitution and Keynesian propensities to consume," Economics Letters, Elsevier, Elsevier, vol. 39(4), pages 479-484, August.
  8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  9. Alogoskoufis, George & van der Ploeg, Frederick, 1990. "On Budgetary Policies and Economic Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 496, C.E.P.R. Discussion Papers.
  10. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  11. Becker, Robert A., 1982. "Intergenerational equity: The capital-environment trade-off," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 165-185, June.
  12. Withagen, Cees, 1994. "Pollution and exhaustibility of fossil fuels," Resource and Energy Economics, Elsevier, Elsevier, vol. 16(3), pages 235-242, August.
  13. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, Elsevier, vol. 35(3), pages 333-354, April.
  14. Keeler, Emmett & Spence, Michael & Zeckhauser, Richard, 1972. "The optimal control of pollution," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(1), pages 19-34, February.
  15. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 21(2-3), pages 195-232.
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Citations

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Cited by:
  1. Giovanni Ganelli & Juha Tervala, 2010. "International Transmission of Environmental Policy: A New Keynesian Perspective," Discussion Papers, Aboa Centre for Economics 58, Aboa Centre for Economics.
  2. Vellinga, Nico, 1999. "Multiplicative utility and the influence of environmental care on the short-term economic growth rate," Economic Modelling, Elsevier, Elsevier, vol. 16(3), pages 307-330, August.
  3. Lans Bovenberg, A. & de Mooij, Ruud A., 1997. "Environmental tax reform and endogenous growth," Journal of Public Economics, Elsevier, Elsevier, vol. 63(2), pages 207-237, January.
  4. Francesco Ricci, 2004. "Channels of Transmission of Environmental Policy to Economic Growth: A Survey of the Theory," Working Papers, Fondazione Eni Enrico Mattei 2004.52, Fondazione Eni Enrico Mattei.
  5. Hubert Kempf & Stéphane Rossignol, 2005. "Is Inequality Harmful for the Environment in a Growing Economy?," Working Papers, Fondazione Eni Enrico Mattei 2005.5, Fondazione Eni Enrico Mattei.
  6. Morgane Chevé, 2000. "Irreversibility of Pollution Accumulation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 16(1), pages 93-104, May.
  7. Charles van Marrewijk, 2005. "Geographical Economics and the Role of Pollution on Location," Tinbergen Institute Discussion Papers 05-018/2, Tinbergen Institute.

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