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Overlapping generations economy, environmental externalities, and taxation


  • Nguyen Thang Dao

    () (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium; and Vietnam Center for Economic and Policy Research (VEPR), Hanoi, Vietnam)


I set up in this paper an overlapping generations economy with envi-ronment degrading itself and pollution resulting from both consumption and production to show that there always exists an inter-temporal equi-librium and to determine the competitive steady state. This steady state is compared with the equilibrium steady state in the social benevolent planner's point of view. The paper shows the optimal golden rule allo-cation which maximizes the total utility of all generations, and whenever the capital ratio in the competitive framework is higher than the golden rule capital ratio, the economy stands on the dynamically inecient point. The width of the inecient range of capital ratio depends positively on the environment maintaining technology and depends negatively on the cleanness of production technology. For such any competitive economy, I introduce some combinations of taxes and transfer with purpose of de-centralizing the best steady state attainable through the good and factors markets.

Suggested Citation

  • Nguyen Thang Dao, 2011. "Overlapping generations economy, environmental externalities, and taxation," Working Papers 02, Development and Policies Research Center (DEPOCEN), Vietnam.
  • Handle: RePEc:dpc:wpaper:0211

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    More about this item


    overlapping generations; environmental externality; taxes and transfer scheme.;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods


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