Growth with Depletable Resources Need Not be Unstable: A Special Hartwick-Rule Tax in the Stiglitz Model

Ken Stollery
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Ken Stollery: Department of Economics, University of Waterloo

No 4001, Working Papers from University of Waterloo, Department of Economics

Abstract: The basic competitive, general equilibrium growth model with nonrenewable resource depletion suggests that, due to the lack of perfect foresight, there is no way to guarantee that an economy using a depletable resource will follow an efficient path to a steady-state of sustainable per capita consumption. In contrast, we find that stability can be guaranteed with a Hartwick-rule tax on resource rents with a special deduction, proportional to the ratio of physical to natural capital. This tax makes the saving rate respond to the levels of the capital stocks, and compensates for myopia on the part of market participants.

Pages: 15 pages
Date: 2004-01, Revised 2004-01
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Persistent link: https://EconPapers.repec.org/RePEc:wat:wpaper:04002

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