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The Growth-Environment Trade-off: Horizontal vs Vertical Innovations

  • Andre'' Grimaud

    (GREMAQ and IDEI, Universite' de Toulouse 1)

  • Francesco Ricci

    (GREMAQ, Universite' de Toulouse 1)

This paper explores the trade-off between economic growth and environmental quality along two paradigms of endogenous growth theory: variety expansion (HIP) and quality improvements (VIP). We compare the policies that match the decentralised economies' paths with the optimal "strong sustainable" growth path, characterised by growth in consumption and improvements in environmental quality. Three policy tools are employed: subsidies to monopolists and R&D, and taxes on emissions. The latter is increasing at the optimum, to keep the weight of tax revenues over output constant. All policy tools equal, the growth rate is higher in the VIP than in the HIP. The optimal subsidy to R&D is therefore greater and the cumulative loss in output smaller under HIP than the VIP.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.34.

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Date of creation: Mar 1999
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Handle: RePEc:fem:femwpa:1999.34
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  1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  2. Elbasha, Elamin H. & Roe, Terry L., 1996. "On Endogenous Growth: The Implications of Environmental Externalities," Journal of Environmental Economics and Management, Elsevier, vol. 31(2), pages 240-268, September.
  3. Heal, G., 1990. "The Optimal Use Of Exhaustible Resources," Papers fb-_90-10, Columbia - Graduate School of Business.
  4. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  5. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  6. Sjak Smulders, 1995. "Entropy, environment, and endogenous economic growth," International Tax and Public Finance, Springer, vol. 2(2), pages 319-340, August.
  7. Philippe Michel & Gilles Rotillon, 1995. "Disutility of pollution and endogenous growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 6(3), pages 279-300, October.
  8. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
  9. Byrne, Margaret M., 1997. "Is growth a dirty word? Pollution, abatement and endogenous growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 261-284, December.
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