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Economic growth and polluting resources: Market equilibrium and optimal policies

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  • Silva, Susana
  • Soares, Isabel
  • Afonso, Oscar

Abstract

This paper develops an endogenous growth model to study the decentralized equilibrium and the optimum conditions in an economy which uses polluting resources. The model includes two policy instruments, a subsidy to final consumption and an emissions tax. It also considers two forms of endogenous technical change, pollution-reducing knowledge and horizontal innovation. We show that, if the efficiency of knowledge to reduce emissions is sufficiently high, a higher output is compatible with lower emissions in both levels and growth rates. Additionally, if the two instruments are used together the economy may achieve a higher output and lower emissions since the subsidy may offset, at least partially, the negative tax effects.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:ecmode:v:30:y:2013:i:c:p:825-834
    DOI: 10.1016/j.econmod.2012.10.014
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    1. repec:eee:ecmode:v:70:y:2018:i:c:p:215-229 is not listed on IDEAS
    2. repec:spr:endesu:v:19:y:2017:i:4:d:10.1007_s10668-016-9790-y is not listed on IDEAS

    More about this item

    Keywords

    Natural resources; Pollution; Economic growth; Environmental policy;

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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