How robust is the natalist bias of pollution control?

This paper assesses the robustness of the so-called “natalist bias” of pollution control. The latter suggests that taxing emissions encourage agents to shift from production to tax-free activities such as procreation, further deteriorating the environment and gradually impoverishing the next generations. We relax the assumptions that human capital does not depend on environmental quality and that society does not allocate resources to pollution control. Using a similar Overlapping Generations (OLG) growth model, our findings indicate that taxation does not necessarily encourage agents to permanently shift away from production because living under better environmental conditions enhances productivity through human capital formation. As the government increases the emissions price, agents reduce consumption and education spending, hurting output in the short term. However, in the long run, the reduction in emissions that follows taxation more than compensates for the initial adverse effects, provided that the sensitivity of human capital accumulation to environmental degradation is strong enough. Furthermore, as we increase the coefficient capturing such pollution externality, a Neimark-Sacker bifurcation occurs, making the system compatible with persistent endogenous fluctuations