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The Political Economy Of Environmental Policy With Overlapping Generations

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  • Larry Karp
  • Armon Rezai

Abstract

A two‐sector overlapping generations model illuminates the intergenerational effects of a tax that protects an environmental stock. A traded asset capitalizes the economic returns to future tax‐induced environmental improvements, benefiting the current asset owners, the old generation. Absent a transfer, the tax harms the young generation by decreasing their real wage. Future generations benefit from the tax‐induced improvement in environmental stock. The principal intergenerational conflict arising from the tax is between generations alive at the time society imposes the policy, not between generations alive at different times. A Pareto‐improving tax can be implemented under various political economy settings.

Suggested Citation

  • Larry Karp & Armon Rezai, 2014. "The Political Economy Of Environmental Policy With Overlapping Generations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 711-733, August.
  • Handle: RePEc:wly:iecrev:v:55:y:2014:i::p:711-733
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    File URL: http://hdl.handle.net/10.1111/iere.12068
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    Cited by:

    1. Rezai, Armon & van der Ploeg, Frederick, 2014. "Abandoning Fossil Fuel: How Fast And How Much?," CEPR Discussion Papers 9921, C.E.P.R. Discussion Papers.
    2. Gerlagh, Reyer & Jaimes, Richard & Motavasseli, Ali, 2017. "Global demographic change and climate policies," Discussion Paper 2017-035, Tilburg University, Center for Economic Research.
    3. Habla, Wolfgang & Roeder, Kerstin, 2017. "The political economy of mitigation and adaptation," European Economic Review, Elsevier, vol. 92(C), pages 239-257.
    4. Lugovoy, O. & Polbin, A., 2016. "On Intergenerational Distribution of the Burden of Greenhouse Gas Emissions," Journal of the New Economic Association, New Economic Association, vol. 31(3), pages 12-39.
    5. Karine Constant & Marion Davin, 2018. "Unequal vulnerability to climate change and the transmission of adverse effects through international trade," Working Papers 2018.01, FAERE - French Association of Environmental and Resource Economists.
    6. repec:eee:eecrev:v:96:y:2017:i:c:p:1-17 is not listed on IDEAS
    7. Karp, Larry & Rezai, Armon, 2017. "Asset prices and climate policy," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6fx579fp, Department of Agricultural & Resource Economics, UC Berkeley.
    8. Jan Siegmeier & Linus Mattauch & Max Franks & David Klenert & Anselm Schultes & Ottmar Edenhofer, 2015. "A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare," Working Papers 2015.31, Fondazione Eni Enrico Mattei.
    9. Stan Metcalfe, 2014. "George Shackle and The Schumpeterian Legacy," Graz Economics Papers 2014-08, University of Graz, Department of Economics.
    10. Laurence J. Kotlikoff & Andrey Polbin & Andrey Zubarev, 2016. "Will the Paris Accord Accelerate Climate Change?," NBER Working Papers 22731, National Bureau of Economic Research, Inc.
    11. 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.
    12. Michael Hoel & Sverre A.C. Kittelsen & Snorre Kverndokk, 2015. "Pareto Improving Climate Policies: Distributing the Benefits across Generations and Regions," CESifo Working Paper Series 5487, CESifo Group Munich.

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