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

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  • Itaya, Jun-ichi

Abstract

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).

Suggested Citation

  • Itaya, Jun-ichi, 2008. "Can environmental taxation stimulate growth? The role of indeterminacy in endogenous growth models with environmental externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1156-1180, April.
  • Handle: RePEc:eee:dyncon:v:32:y:2008:i:4:p:1156-1180
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    References listed on IDEAS

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