What is environmental sustainability? Optimal environmental policy as a targeting regime

Aleksandar Vasilev

Economics Bulletin, 2022, vol. 42, issue 3, 1527 - 1535

Abstract: We define and model environmental sustainability within a General-Equilibrium framework. The focus in on "environmental fiscal policy" that pursues environmental sustainability, and the optimal sustainability strategy. We compare and contrast the exogenous fiscal-policy case with the optimal (Ramsey) fiscal policy cases. We find that: (i) returning to 100 percent clean environment is not optimal, and thus not a good target, and (ii) optimal environmental policy constitutes trying to manage environmental quality within pre-specified bands, and is thus akin to inflation targeting in the monetary economics literature; we call this environmental quality targeting, which is a novel quantitative criterion to measure environmental sustainability in a dynamic context. This is the first place such an analogy has been established, and where the contribution of this note lies.

Keywords: environmental sustainability; pollution; environmental quality; environmental tax; abatement spending; optimal (Ramsey) environmental fiscal policy; environmental-quality-targeting (search for similar items in EconPapers)
JEL-codes: E3 Q5 (search for similar items in EconPapers)
Date: 2022-09-30
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