Distance to the End: The Question of UNsustainability

This paper considers the dynamics of pollution and sustainable growth in a context where the detrimental effects of pollution on total factor productivity can push the economy to a point of collapse. With environmental policy constrained by tax revenues, we investigate how the proximity to collapse -distance to the end -influences the balance between mitigation and adaptation spending. We show that adaptation policies are recommended when pollution intensity is high, whereas mitigation policies may be more effective when pollution intensity is low. Financing these policies by a carbon tax is more effective than an income tax. Examining the welfare of present and future generations, we reveal that the trade-off between mitigation and adaptation does not align across generations: while current generations may prefer adaptation, future generations tend to benefit more from mitigation.