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Environmental Quality, Public Debt and Economic Development

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  • Mouez Fodha

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  • Thomas Seegmuller

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Abstract

This article analyzes the consequences on capital accumulation and environmental quality of environmental policies financed by public debt. A public sector of pollution abatement is financed by a tax or by public debt. We show that if the initial capital stock is high enough, the economy monotonically converges to a long-run steady state. On the contrary, when the initial capital stock is low, the economy is relegated to an environmental poverty trap. We also explore the implications of public policies on the trap and on the long-run stable steady state. In particular, we find that government should decrease debt and increase pollution abatement to promote capital accumulation and environmental quality at the stable long-run steady state. Finally, a welfare analysis shows that there exists a level of public debt that allows a long run steady state to be optimal. Copyright Springer Science+Business Media Dordrecht 2014

Suggested Citation

  • Mouez Fodha & Thomas Seegmuller, 2014. "Environmental Quality, Public Debt and Economic Development," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(4), pages 487-504, April.
  • Handle: RePEc:kap:enreec:v:57:y:2014:i:4:p:487-504
    DOI: 10.1007/s10640-013-9639-x
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    References listed on IDEAS

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    1. repec:kap:enreec:v:68:y:2017:i:1:d:10.1007_s10640-017-0155-2 is not listed on IDEAS
    2. repec:leo:wpaper:1824 is not listed on IDEAS
    3. Mouez Fodha & Thomas Seegmuller & Hiroaki Yamagami, 2014. "Environmental Policies under Debt Constraint," AMSE Working Papers 1431, Aix-Marseille School of Economics, Marseille, France, revised Jun 2014.
    4. Alexander Golub & Michael Toman, 2016. "Climate Change, Industrial Transformation, and “Environmental Growth Traps”," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 249-263, February.
    5. Halkos, George & Papageorgiou, George, 2017. "Public debt, pollution and environmental taxes: Nash and Stackelberg equilibria," MPRA Paper 81982, University Library of Munich, Germany.
    6. repec:bla:rdevec:v:21:y:2017:i:3:p:786-802 is not listed on IDEAS
    7. Torben M. Andersen & Joydeep Bhattacharya & Pan Liu, 2016. "Resolving Intergenerational Conflict over the Environment under the Pareto Criterion," CESifo Working Paper Series 6053, CESifo Group Munich.

    More about this item

    Keywords

    Environmental policies; Pollution abatement; Public debt; Economic development; Poverty trap; H23; H63; Q56;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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