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Can environmental taxation stimulate growth? The role of indeterminacy in endogenous growth models with environmental externalities

  • Itaya, Jun-ichi
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    This paper examines the effects of environmental taxation on long-run growth in an infinitely lived representative agent model of endogenous growth with negative pollution externalities. The novelty of this paper lies in its investigation of how the long-run effects of environmental taxes are affected by the possible emergence of indeterminacy of equilibria in Romer's [1986. Increasing returns and long-run growth. Journal of Political Economy 94, 1002-1037] learning-by-doing model with endogenous labor supply. The analysis shows that environmental taxation generally enhances (harms) long-run growth when the balanced growth path is indeterminate (determinate).

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    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 32 (2008)
    Issue (Month): 4 (April)
    Pages: 1156-1180

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    Handle: RePEc:eee:dyncon:v:32:y:2008:i:4:p:1156-1180
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