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Pollution, Mortality and Time-Consistent Abatement Taxes

Goenka, A., Jafarey, S. and Pouliot, W. (2020). Pollution, Mortality and Time-Consistent Abatement Taxes. Journal of Mathematical Economics, doi: doi.org/10.1016/j.jmateco.2020.01.004

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 Arts & Social Sciences > Economics
URI: https://openaccess.city.ac.uk/id/eprint/23539
[img] Text - Accepted Version
This document is not freely accessible until 12 August 2021 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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