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Private Externalities and Environmental Public Goods: Politico-economic Consequences


  • Timothy Kam


  • Yingying Lu



We study an overlapping-generations model with private externalities on a public good (e.g. the environment). Emergent politico-economic equilibria, depending on model primitives (e.g. the degree of externality), imply that average income and environmental outcomes may be related positively or negatively, or not at all. Qualitatively, these equilibria provide a cross-country interpretation for existing disagreements in empirical findings on average income and environment. Normatively, inefficiently excessive environmental outcomes may emerge. These are partly explained by a politico-economic redistributive tension along a taxation Laffer curve. However, with externalities, this tension is further modified, resulting in these excesses being non-monotonic in the degree of externality.

Suggested Citation

  • Timothy Kam & Yingying Lu, 2012. "Private Externalities and Environmental Public Goods: Politico-economic Consequences," ANU Working Papers in Economics and Econometrics 2012-589, Australian National University, College of Business and Economics, School of Economics.
  • Handle: RePEc:acb:cbeeco:2012-589

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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