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Inequality, Environmental Protection and Growth

Author

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  • Marsiliani, L.

    (Tilburg University, Center For Economic Research)

  • Renstrom, T.I.

    (Tilburg University, Center For Economic Research)

Abstract

Why do Scandinavian countries perform better in terms of environmental protection than other European Union countries? In this paper, we explore the hypothesis that societies characterised by low income inequality (such as the nordic European countries) generate political-economic equilibria where environmental policy is more stringent. We model an overlapping-generations economy in which individuals differ in skills to address the question to what extent in modern democracies, income distribution influences the stringency of environmental policy and consequently the growth of a country. Individuals work when they are young and own capital when they are old. Pollution externalities are present due to the use of a polluting factor. The government uses the revenue from a capital-income tax and a pollution tax for a lump-sum transfer to the old generation. The fiscal decision at each point in time is taken by a majority elected representative. In politico-economic equilibrium, the lower the skill of the median individual is relative to the average, the smaller the pollution tax and the capital stock are, and the greater the capital income-tax and the relative use of the polluting factor. We perform both steady-state analysis and examine the transition path. Subsequently, we present an empirical analysis for two panels of seven and ten industrialised countries from the late seventies to late nineties. Our framework is able to explain the stylised facts regarding inequality, environmental protection, and growth.

Suggested Citation

  • Marsiliani, L. & Renstrom, T.I., 2000. "Inequality, Environmental Protection and Growth," Discussion Paper 2000-34, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:4b2514ec-6e0c-448e-901a-a5b5914b73da
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    References listed on IDEAS

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    1. Bovenberg, A Lans & Smulders, Sjak A, 1996. "Transitional Impacts of Environmental Policy in an Endogenous Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 861-893, November.
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    Citations

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    Cited by:

    1. Laura Marsiliani & Thomas Renstrom, 2002. "On Income Inequality and Green Preferences," Wallis Working Papers WP30, University of Rochester - Wallis Institute of Political Economy.
    2. David Pearce & Charles Palmer, 2001. "Public and private spending for environmental protection: a cross-country policy analysis," Fiscal Studies, Institute for Fiscal Studies, vol. 22(4), pages 403-456, December.
    3. Laura Marsiliani & Thomas I Renstrom, 2005. "Political Institutions, Environmental Policy and Growth," Money Macro and Finance (MMF) Research Group Conference 2005 38, Money Macro and Finance Research Group.
    4. Alassane Drabo, 2011. "Impact of Income Inequality on Health: Does Environment Quality Matter?," Environment and Planning A, , vol. 43(1), pages 146-165, January.
    5. Eriksson, Clas & Persson, Joakim, 2002. "Economic Growth, Inequality, Democratization, and the Environment," Working Paper Series 178, Trade Union Institute for Economic Research.
    6. Marsiliani, Laura & Renström, Thomas I, 2003. "On Income Inequality and Green Preferences," CEPR Discussion Papers 3677, C.E.P.R. Discussion Papers.
    7. Hubert Kempf & Stéphane Rossignol, 2007. "Is Inequality Harmful For The Environment In A Growing Economy?," Economics and Politics, Wiley Blackwell, vol. 19(1), pages 53-71, March.
    8. repec:hal:journl:halshs-00117046 is not listed on IDEAS
    9. Bousquet, Alain & Favard, Pascal, 2000. "Does S. Kuznets' Belief Question the Environment Kuznets Curves?," IDEI Working Papers 107, Institut d'Économie Industrielle (IDEI), Toulouse.
    10. Laura Marsiliani & Thomas Renstrom, 2002. "Environmental Policy and Capital Movements: The Role of Government Commitment," Wallis Working Papers WP31, University of Rochester - Wallis Institute of Political Economy.
    11. Marsiliani, Laura & Renström, Thomas I, 2003. "Inequality, Environmental Protection and Growth," CEPR Discussion Papers 3754, C.E.P.R. Discussion Papers.
    12. Marsiliani, Laura & Renström, Thomas I, 2003. "Environmental Policy and Capital Movements: The Role of Government Commitment," CEPR Discussion Papers 3727, C.E.P.R. Discussion Papers.
    13. Laura Marsiliani & Thomas Renstrom, 2002. "Inequality, Environmental Protection and Growth," Wallis Working Papers WP35, University of Rochester - Wallis Institute of Political Economy.
    14. Laura Marsiliani & Thomas I. Renström, 2003. "Environmental Policy and Capital Movements: The Role of Government Commitment," Working Papers 2003.4, Fondazione Eni Enrico Mattei.

    More about this item

    Keywords

    Environmental policy; majority voting; endogenous fiscal structure; income distribution; overlapping generations; growth;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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