Pollution, Mortality and Time Consistent Abatement Taxes
Research output: Contribution to journal › Article
- City University London
We study dynamically consistent policy in a neoclassical overlapping generations growth model where pollution externalities undermine health but are mitigated via tax-financed 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 effect on savings induces additional steady states, stability reversals and oscillations.
|Number of pages||42|
|Journal||Journal of Mathematical Economics|
|Publication status||Published - 14 Jan 2020|