Environmental taxation, health and the life-cycle
We build a model that takes into consideration the evolution of health over the life cycle and its consequences on individual optimal choices. In this framework, the effect of environmental taxation are not limited to the traditional negative crowding-out and positive productivity effects. We show that environmental taxation generates new general equilibrium effects ignored by previous contributions. Indeed, as the environmental tax improves the health profile over the life-cycle, it influences saving, labor supply, retirement and investment in health. We also show that whether those general equilibrium effects are positive or negative for the economy crucially depends on the degree of substitutability between young and old labor. We complete our theoretical analysis with numerical examples. Within the range of our parameters, it appears that ignoring those general equilibrium effects results in significantly understating the negative of environmental tax- ation on output per capita and welfare.
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