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Is growth bad for the environment? Pollution, abatement, and endogenous growth

Author

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  • van Marrewijk, Charles
  • van der Ploeg, Federick
  • Verbeek, Jos

Abstract

The authors investigate the implications of pollution as a byproduct of production and analyze how environmental concern affects the optimal rate of economic growth and optimal government policy. The government must levy taxes on income to finance both productive government spending and abatement activities. It must levy an optimal tax. Too high a tax rate harms prospects for growth and too low a tax rate is bad for the environment. The authors distinguish between two approaches to incorporate the environment into the model stock approach and the flow approach. The flow approach assumes that the level of environmental quality changes instantly if production or abatement levels change (this is relevant for analyzing externalities associated, for example, with noise). The stock approach assumes that pollution and abatement indirectly influence the environment by affecting the rate of change in the environment over time (this is more relevant for analyzing problems of acid rain). They conclude that: win-win situations (in which improvements in economic growth and environmental quality go hand in hand) cannot arise under the flow approach, but can arise under the stock approach - if and only if the intertemporal elasticity of substitution exceeds unity; and maximizing the economy's growth rate is never optimal unless consumers care nothing about the environment.

Suggested Citation

  • van Marrewijk, Charles & van der Ploeg, Federick & Verbeek, Jos, 1993. "Is growth bad for the environment? Pollution, abatement, and endogenous growth," Policy Research Working Paper Series 1151, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1151
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    References listed on IDEAS

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    3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
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    Citations

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    Cited by:

    1. 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.
    2. Morgane Chevé, 2000. "Irreversibility of Pollution Accumulation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(1), pages 93-104, May.
    3. Ricci, Francesco, 2007. "Channels of transmission of environmental policy to economic growth: A survey of the theory," Ecological Economics, Elsevier, vol. 60(4), pages 688-699, February.
    4. Ganelli, Giovanni & Tervala, Juha, 2011. "International transmission of environmental policy: A New Keynesian perspective," Ecological Economics, Elsevier, vol. 70(11), pages 2070-2082, September.
    5. Vellinga, Nico, 1999. "Multiplicative utility and the influence of environmental care on the short-term economic growth rate," Economic Modelling, Elsevier, vol. 16(3), pages 307-330, August.

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