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Stochastic Environmental Policy, Risk-Taking, and Growth

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  • Soretz, Susanne

Abstract

This paper analyzes stochastic productive pollution within a model of endogenous growth. The extent to which the agents perceive their individual influence on aggregate pollution is parameterized. Recursive preferences allow for the separation between intertemporal substitutability and risk aversion. Two different environmental policy regimes are distinguished: A stochastic pollution tax, which is uncorrelated with the technological uncertainty of pollution, is compared with a pure deterministic tax regime. The impact of the stochastic pollution tax on abatement effort and growth is ambiguous and depends on the parameter setting. Nevertheless, it is shown, that for a sufficiently high volatility of the pollution tax, the induced rise in uncertainty associated with pollution leads to an increase in abatement activities and therefore supports the corresponding deterministic environmental policy.

Suggested Citation

  • Soretz, Susanne, 2003. "Stochastic Environmental Policy, Risk-Taking, and Growth," Hannover Economic Papers (HEP) dp-282, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  • Handle: RePEc:han:dpaper:dp-282
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    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-282.pdf
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    Cited by:

    1. Ingrid Ott & Susanne Soretz, 2004. "Growth and Welfare Effects of Tax Cuts: The Case of a Productive Public Input with Technological Risk," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(2), pages 117-135, June.
    2. Susanne Soretz, 2007. "Efficient Dynamic Pollution Taxation in an Uncertain Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(1), pages 57-84, January.
    3. Clemens, Christiane & Soretz, Susanne, 2004. "Optimal fiscal policy, uncertainty, and growth," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 679-697, December.

    More about this item

    Keywords

    pollution; endogenous growth; uncertainty; taxation;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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