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The consequences of environmental policy for economic growth: A numerical simulation of the transition path

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  • Hettich, Frank

Abstract

This paper analyses the consequences of tightening environmental policy for economic growth. To find out how the new balanced growth path is reached in the long run, we simulate numerically for the short and medium term the transition path of a change in environmental policy within an endogenous growth model. This enables us to analyse welfare effects also dynamically. Additionally, it is possible to compare accumulated levels of abatement, consumption, and output after the transition process with the business as usual scenario. Whereas long run growth rates are not affected by any environmental measure, there are non-monotonous adjustments during the transition. For environmental policy being suboptimal in the initial equilibrium, welfare in every period is higher compared to the business as usual scenario.

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  • Hettich, Frank, 1995. "The consequences of environmental policy for economic growth: A numerical simulation of the transition path," Discussion Papers, Series II 266, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    • Handle: RePEc:zbw:kondp2:266
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    1. Smulders, Sjak & Gradus, Raymond, 1996. "Pollution abatement and long-term growth," European Journal of Political Economy, Elsevier, vol. 12(3), pages 505-532, November.
    2. Ligthart, Jenny E. & van der Ploeg, Frederick, 1994. "Pollution, the cost of public funds and endogenous growth," Economics Letters, Elsevier, vol. 46(4), pages 339-349, December.
    3. Sjak Smulders, "undated". "Environmental Policy and Sustainable Economic Growth - an endogenous growth perspective," EPRU Working Paper Series 95-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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    1. Frank Hettich, 1998. "Growth effects of a revenue-neutral environmental tax reform," Journal of Economics, Springer, vol. 67(3), pages 287-316, October.
    2. Hettich, Frank & Killinger, Sebastian & Winker, Peter, 1996. "Die ökologische Steuerreform auf dem Prüfstand: Zur Kritik am Gutachten des Deutschen Instituts für Wirtschaftsforschung," Discussion Papers, Series II 311, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    3. Hettich, Frank, 1997. "Growth effects of a revenue neutral environmental tax reform," Discussion Papers, Series II 351, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".

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