IDEAS home Printed from https://ideas.repec.org/a/eee/pubeco/v96y2012i9p784-796.html
   My bibliography  Save this article

Natural disasters in a two-sector model of endogenous growth

Author

Listed:
  • Ikefuji, Masako
  • Horii, Ryo

Abstract

Using an endogenous growth model with physical and human capital accumulation, this paper considers the sustainability of economic growth when the use of a polluting input (e.g., fossil fuels) intensifies the risk of capital destruction through natural disasters. We find that growth is sustainable only if the tax rate on the polluting input increases over time. The long-term rate of economic growth follows an inverted V-shaped curve relative to the growth rate of the environmental tax, and it is maximized by the least aggressive tax policy of those that asymptotically eliminate the use of polluting inputs. Unavailability of insurance can accelerate or decelerate the growth-maximizing speed of the tax increase depending on the relative significance of the risk premium and precautionary savings effects. Welfare is maximized under a milder environmental tax policy, especially when the pollutants accumulate gradually.

Suggested Citation

  • Ikefuji, Masako & Horii, Ryo, 2012. "Natural disasters in a two-sector model of endogenous growth," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 784-796.
    • Handle: RePEc:eee:pubeco:v:96:y:2012:i:9:p:784-796
    DOI: 10.1016/j.jpubeco.2012.05.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0047272712000448
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jpubeco.2012.05.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Seung-Ki Min & Xuebin Zhang & Francis W. Zwiers & Gabriele C. Hegerl, 2011. "Human contribution to more-intense precipitation extremes," Nature, Nature, vol. 470(7334), pages 378-381, February.
    2. Eliasson, Ludvik & Turnovsky, Stephen J., 2004. "Renewable resources in an endogenously growing economy: balanced growth and transitional dynamics," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1018-1049, November.
    3. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June.
    4. Kerry Emanuel, 2005. "Increasing destructiveness of tropical cyclones over the past 30 years," Nature, Nature, vol. 436(7051), pages 686-688, August.
    5. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, vol. 88(2), pages 221-231, March.
    6. John, A & Pecchenino, R, 1994. "An Overlapping Generations Model of Growth and the Environment," Economic Journal, Royal Economic Society, vol. 104(427), pages 1393-1410, November.
    7. Susanne Soretz, 2007. "Efficient Dynamic Pollution Taxation in an Uncertain Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(1), pages 57-84, January.
    8. Michel Denuit & Louis Eeckhoudt & Mario Menegatti, 2011. "Correlated risks, bivariate utility and optimal choices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(1), pages 39-54, January.
    9. Grimaud, Andre & Rouge, Luc, 2003. "Non-renewable resources and growth with vertical innovations: optimum, equilibrium and economic policies," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 433-453, March.
    10. Hallegatte, Stéphane & Dumas, Patrice, 2009. "Can natural disasters have positive consequences? Investigating the role of embodied technical change," Ecological Economics, Elsevier, vol. 68(3), pages 777-786, January.
    11. Tsur, Yacov & Zemel, Amos, 2005. "Scarcity, growth and R&D," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 484-499, May.
    12. Hallegatte, Stephane & Hourcade, Jean-Charles & Dumas, Patrice, 2007. "Why economic dynamics matter in assessing climate change damages: Illustration on extreme events," Ecological Economics, Elsevier, vol. 62(2), pages 330-340, April.
    13. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September.
    14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    15. Gaddis, Erica Brown & Miles, Brian & Morse, Stephanie & Lewis, Debby, 2007. "Full-cost accounting of coastal disasters in the United States: Implications for planning and preparedness," Ecological Economics, Elsevier, vol. 63(2-3), pages 307-318, August.
    16. Lans Bovenberg, A. & Smulders, Sjak, 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Journal of Public Economics, Elsevier, vol. 57(3), pages 369-391, July.
    17. Raymond Gradus & Sjak Smulders, 1993. "The trade-off between environmental care and long-term growth—Pollution in three prototype growth models," Journal of Economics, Springer, vol. 58(1), pages 25-51, February.
    18. Tol, Richard S. J. & Narita, Daiju & Anthoff, David, 2008. "Damage Costs of Climate Change through Intensification of Tropical Cyclone Activities: An Application of FUND," Papers WP259, Economic and Social Research Institute (ESRI).
    19. Lord, William & Rangazas, Peter, 1998. "Capital Accumulation and Taxation in a General Equilibrium Model with Risky Human Capital," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 509-531, July.
    20. Mark Skidmore & Hideki Toya, 2002. "Do Natural Disasters Promote Long-Run Growth?," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 664-687, October.
    21. Groth, Christian & Schou, Poul, 2007. "Growth and non-renewable resources: The different roles of capital and resource taxes," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 80-98, January.
    22. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
    23. Palivos, Theodore & Wang, Ping & Zhang, Jianbo, 1997. "On the Existence of Balanced Growth Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 205-224, February.
    24. Hartman, Richard & Kwon, O-Sung, 2005. "Sustainable growth and the environmental Kuznets curve," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1701-1736, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ryo Horii & Masako Ikefuji, 2014. "Environment and Growth," DSSR Discussion Papers 21, Graduate School of Economics and Management, Tohoku University.
    2. Felbermayr, Gabriel & Gröschl, Jasmin, 2014. "Naturally negative: The growth effects of natural disasters," Journal of Development Economics, Elsevier, vol. 111(C), pages 92-106.
    3. Loayza, Norman V. & Olaberría, Eduardo & Rigolini, Jamele & Christiaensen, Luc, 2012. "Natural Disasters and Growth: Going Beyond the Averages," World Development, Elsevier, vol. 40(7), pages 1317-1336.
    4. Thomas K.J. McDermott & Frank Barry & Richard S.J. Tol, 2014. "Disasters and development: natural disasters, credit constraints, and economic growth," Oxford Economic Papers, Oxford University Press, vol. 66(3), pages 750-773.
    5. Eduardo Cavallo & Ilan Noy, 2009. "The Economics of Natural Disasters: A Survey," Research Department Publications 4649, Inter-American Development Bank, Research Department.
    6. Jasmin Katrin Gröschl, 2013. "Gravity Model Applications and Macroeconomic Perspectives," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 48.
    7. Pelli, Martino & Tschopp, Jeanne & Bezmaternykh, Natalia & Eklou, Kodjovi M., 2023. "In the eye of the storm: Firms and capital destruction in India," Journal of Urban Economics, Elsevier, vol. 134(C).
    8. Theodore Panayotou, 2000. "Economic Growth and the Environment," CID Working Papers 56A, Center for International Development at Harvard University.
    9. Naqvi, Asjad, 2017. "Deep Impact: Geo-Simulations as a Policy Toolkit for Natural Disasters," World Development, Elsevier, vol. 99(C), pages 395-418.
    10. Wei Jin & ZhongXiang Zhang, 2018. "Capital Accumulation, Green Paradox, and Stranded Assets: An Endogenous Growth Perspective," Working Papers 2018.33, Fondazione Eni Enrico Mattei.
    11. Ilan Noy, 2012. "Natural Disasters and Economic Policy for the Pacific Rim," Working Papers 201201, University of Hawaii at Manoa, Department of Economics.
    12. Mónica Meireles & Isabel Soares & Óscar Afonso, 2010. "Economic Growth, Ecological Technology and Public Intervention," FEP Working Papers 378, Universidade do Porto, Faculdade de Economia do Porto.
    13. Maxime Menuet & Alexandru Minea & Patrick Villieu & Anastasios Xepapadeas, 2020. "Economic Growth and the Environment: A Theoretical Reappraisal," DEOS Working Papers 2031, Athens University of Economics and Business.
    14. Wang, Min, 2010. "Essays on Environment, Natural Resource, Growth and Development," ISU General Staff Papers 201001010800002824, Iowa State University, Department of Economics.
    15. Matteo Coronese & Davide Luzzati, 2022. "Economic impacts of natural hazards and complexity science: a critical review," LEM Papers Series 2022/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    16. Emmanuel Apergis & Nicholas Apergis, 2021. "The impact of COVID-19 on economic growth: evidence from a Bayesian Panel Vector Autoregressive (BPVAR) model," Applied Economics, Taylor & Francis Journals, vol. 53(58), pages 6739-6751, December.
    17. Brei, Michael & Mohan, Preeya & Strobl, Eric, 2019. "The impact of natural disasters on the banking sector: Evidence from hurricane strikes in the Caribbean," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 232-239.
    18. Poul Schou, 2000. "Polluting Non-Renewable Resources and Growth," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(2), pages 211-227, June.
    19. M. Scott Taylor & William A. Brock, "undated". "The Kindergarten Rule of Sustainable Growth," Working Papers 2014-70, Department of Economics, University of Calgary, revised 29 Sep 2014.
    20. Lucas Bretschger, 2013. "Population Growth and Natural-Resource Scarcity: Long-Run Development under Seemingly Unfavorable Conditions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(3), pages 722-755, July.

    More about this item

    Keywords

    Human capital; Global warming; Environmental tax; Nonbalanced growth path; Precautionary saving;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:96:y:2012:i:9:p:784-796. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505578 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.