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The environmental Kuznets curve and equilibrium indeterminacy

Listed author(s):
  • Fernández, Esther
  • Pérez, Rafaela
  • Ruiz, Jesús

We illustrate that the existence of the environmental Kuznets curve (EKC) could be the result of indeterminacy of equilibria. In a simple neoclassical growth model with a single environmental externality in households’ utility function and with public abatement, we characterize the condition on the parameters in preferences and in the pollution technology leading to local indeterminacy of equilibrium. Estimates of the crucial parameters of the model using data from economies that display the EKC satisfy the theoretical indeterminacy condition. We find that the presence of abatement activities is not a necessary condition for indeterminacy equilibria and hence, an EKC to arise. On the other hand, non-separability of consumption and pollution in the utility function is crucial.

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

Volume (Year): 36 (2012)
Issue (Month): 11 ()
Pages: 1700-1717

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:11:p:1700-1717
DOI: 10.1016/j.jedc.2012.05.004
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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