City Research Online

Abstract

We study dynamically consistent policy in a neoclassical overlapping generations growth model where pollution externalities undermine health but are mitigated via tax- nanced abatement. With arbitrarily constant taxation, two steady states arise: an unstable `poverty trap' and a `neoclassical' steady state near which the dynamics might either be monotonically convergent or oscillating. When the planner chooses a time consistent abatement path that maximises a weighted intergenerational sum of expected utility, the optimal tax is zero at low levels of capital and then a weakly increasing function of the capital stock. The non-homogeneity of the tax function along with its feedback e ect on savings induces additional steady states, stability reversals and oscillations.

Publication Type:	Article
Additional Information:	© 2020. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords:	Time consistency, pollution, mortality, overlapping generations model, poverty traps, endogenous fluctuations, optimal environmental policy
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HF Commerce H Social Sciences > HJ Public Finance
Departments:	School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

Export

Downloads