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Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs

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Abstract

We analyze an overlapping generations model in which pollution arises, in an accumulative way, from production. Households do not care directly about the environment, however pollution makes them incur health costs when they are elderly. We show that the presence of pollution makes the economy more likely to be dynamically inefficient. For these cases we analyze two kinds of tax scheme: one based on production taxes and the other based on capital and wage taxes. We show how to design both schemes in order to put the economy into the golden rule allocation. We also show that under the production tax scheme young and elderly agents pay less taxes (or receive more transfers) than under the capital and wage tax system.

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  • María José Gutiérrez, 2004. "Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs," Economic Working Papers at Centro de Estudios Andaluces E2004/38, Centro de Estudios Andaluces.
  • Handle: RePEc:cea:doctra:e2004_38
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    Cited by:

    1. Pautrel, Xavier, 2009. "Pollution and life expectancy: How environmental policy can promote growth," Ecological Economics, Elsevier, vol. 68(4), pages 1040-1051, February.
    2. Dimitrios Varvarigos, 2013. "Economic Growth, Health, and the Choice of Polluting Technologies: The Role of Bureaucratic Corruption," Discussion Papers in Economics 13/22, Department of Economics, University of Leicester.
    3. Constant, Karine & Nourry, Carine & Seegmuller, Thomas, 2014. "Population growth in polluting industrialization," Resource and Energy Economics, Elsevier, vol. 36(1), pages 229-247.
    4. Basseti, Thomas & Benos, Nikos & Karagiannis, Stelios, 2010. "How policy can influence human capital accumulation and environment quality," MPRA Paper 21754, University Library of Munich, Germany.
    5. Wei-Bin Zhang, 2013. "Dynamic Interactions among Growth, Environmental Change, Habit Formation, and Preference Change," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, vol. 3(1), pages 3-25, December.
    6. Nguyen Thang Dao & Julio Dávila, 2014. "Implementing Steady State Efficiency in Overlapping Generations Economies with Environmental Externalities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(4), pages 620-649, August.
    7. Xavier Pautrel, 2009. "Health-enhancing activities and the environment:How competition for resources make the environmental policy beneficial," Working Papers hal-00423323, HAL.
    8. Dimitrios Varvarigos & Intan Zakaria, 2013. "Endogenous fertility in a growth model with public and private health expenditures," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(1), pages 67-85, January.
    9. Wei-Bin Zhang, 2015. "The Dynamics of Wealth, Environment and Land Value in a Three-Sector Growth Model," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 13(2), pages 197-228.
    10. Wei-Bin Zhang, 2015. "Oscillations in a Growth Model with Capital, Technology and Environment with Exogenous Shocks," Academicus International Scientific Journal, Entrepreneurship Training Center Albania, issue 12, pages 73-93, July.
    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. Emin Gahramanov, 2009. "Tax Evasion and Dynamic Inefficiency," Economics Bulletin, AccessEcon, vol. 29(1), pages 437-443.

    More about this item

    Keywords

    Dynamic inefficiency; Externalities; Health costs; Overlapping generations; Pollution; Taxes.;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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