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Fiscal policies, environmental pollution and economic growth

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  • Gupta, Manash Ranjan
  • Barman, Trishita Ray

Abstract

This paper develops a model of endogenous economic growth with special consideration to the role of productive public expenditure and environmental pollution; and analyses the properties of optimal fiscal policy in the steady state growth equilibrium. We consider the level of consumption as the source of pollution. Government allocates its tax revenue between pollution abatement expenditure and productive public expenditure. Optimum ratio of productive public expenditure to national income is equal to the competitive output share of the public input, when productive public expenditure is depicted as tax revenue minus abatement expenditure. However, the proportional income tax rate exceeds the competitive output share of the public input. There is no conflict between the social welfare maximizing solution and the growth rate maximizing solution in the steady state growth equilibrium. The unique steady state growth equilibrium appears to be a saddle-point when the growth rate is above a critical level and the steady state equilibrium growth rate in the market economy is not necessarily lower than the socially efficient growth rate.

Suggested Citation

  • Gupta, Manash Ranjan & Barman, Trishita Ray, 2009. "Fiscal policies, environmental pollution and economic growth," Economic Modelling, Elsevier, vol. 26(5), pages 1018-1028, September.
  • Handle: RePEc:eee:ecmode:v:26:y:2009:i:5:p:1018-1028
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    2. Chandril Bhattacharyya, 2016. "A note on endogenous growth with public capital," Economics Bulletin, AccessEcon, vol. 36(4), pages 2506-2518.
    3. Evangelos V. Dioikitopoulos & Sugata Ghosh & Eugenia Vella, 2016. "Technological Progress, Time Perception and Environmental Sustainability," Working Papers 2016002, The University of Sheffield, Department of Economics.
    4. Ilaski Barañano & Marta San Martín, 2015. "The Impact of Foreign Aid Linked to Infrastructure and Pollution Abatement," Review of International Economics, Wiley Blackwell, vol. 23(4), pages 667-686, September.
    5. Chandril Bhattacharyya & Manash Ranjan Gupta, 2015. "Unionized Labour Market, Unemployment Allowances, Productive Public Expenditure And Endogenous Growth," Metroeconomica, Wiley Blackwell, vol. 66(3), pages 397-425, July.
    6. Silva, Susana & Soares, Isabel & Afonso, Oscar, 2013. "Economic growth and polluting resources: Market equilibrium and optimal policies," Economic Modelling, Elsevier, vol. 30(C), pages 825-834.
    7. Barañano Mentxaka, Ilaski & San Martín Lizarralde, Marta, 2014. "Foreign Aid Linked to Infrastructure and/or Pollution Abatement," IKERLANAK Ikerlanak;2014-78, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    8. Bhattacharyya, Chandril & Gupta, Manash Ranjan, 2014. "Unionised labour market, environment and endogenous growth," MPRA Paper 55416, University Library of Munich, Germany.
    9. Alfredo Marvão Pereira & Rui M. Pereira, 2012. "DGEP - A Dynamic General Equilibrium Model of the Portuguese Economy: Model Documentation," Working Papers 127, Department of Economics, College of William and Mary.
    10. Donatella Baiardi & Mario Menegatti, 2011. "Pigouvian tax, abatement policies and uncertainty on the environment," Journal of Economics, Springer, vol. 103(3), pages 221-251, July.
    11. Pereira, Alfredo M. & Pereira, Rui M., 2014. "On the environmental, economic and budgetary impacts of fossil fuel prices: A dynamic general equilibrium analysis of the Portuguese case," Energy Economics, Elsevier, vol. 42(C), pages 248-261.
    12. Ramón López & Amparo Palacios, 2014. "Why has Europe Become Environmentally Cleaner? Decomposing the Roles of Fiscal, Trade and Environmental Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(1), pages 91-108, May.

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