A capital scarcity theory of the environmental Kuznets curve

Ariaster B. Chimeli and John Braden ()

Environment and Development Economics, 2009, vol. 14, issue 5, 541-564

Abstract: This paper offers a theory of the environmental Kuznets curve (EKC) based on the scarcity of capital relative to environmental quality. In a unified treatment of both market and transition economies of the former Soviet Bloc, we characterize a dynamic economy subject to two sources of market failure: a pollution externality and a pure public good ‘environmental quality’. We derive a policy rule to implement the social optimum in market and transition economies and show how, in general, a pollution tax or tradable permits can only implement the social optimum if accompanied by other taxes on consumption or profits.

Date: 2009
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