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Growth effects of environmental policy when pollution affects health

  • Aloi, Marta
  • Tournemaine, Frederic

In this paper, we develop a R&D-based growth model with a pollution externality and a health production sector. We study how health-impairing pollution affects long term growth, and the effect of an emissions' reduction policy (tax). We show that a tighter environmental tax has positive effects on growth via two channels. On the one hand, it improves workers' health and, thereby, productivity; on the other hand, it induces a reallocation of resources towards R&D and, thereby, higher research intensity. The size of the growth effect of a tighter environmental tax, and the level of the optimal environmental tax, are both positively correlated with the weight individuals place on health relative to consumption. As for welfare, a tighter environmental tax brings about utility gains in the long run and, potentially, also in the short run.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 4 (July)
Pages: 1683-1695

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1683-1695
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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