Pollution, Mortality and Time Consistent Abatement Taxes

Research output: Contribution to journalArticle

Authors

External organisations

  • City University London

Abstract

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.

Details

Original languageEnglish
Pages (from-to)1-42
Number of pages42
JournalJournal of Mathematical Economics
Publication statusPublished - 14 Jan 2020