The environmental Kuznets curve and equilibrium indeterminacy

Esther Fernández, Rafaela Perez and Jesus Ruiz

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 11, 1700-1717

Abstract: We illustrate that the existence of the environmental Kuznets curve (EKC) could be the result of indeterminacy of equilibria. In a simple neoclassical growth model with a single environmental externality in households’ utility function and with public abatement, we characterize the condition on the parameters in preferences and in the pollution technology leading to local indeterminacy of equilibrium. Estimates of the crucial parameters of the model using data from economies that display the EKC satisfy the theoretical indeterminacy condition. We find that the presence of abatement activities is not a necessary condition for indeterminacy equilibria and hence, an EKC to arise. On the other hand, non-separability of consumption and pollution in the utility function is crucial.

Keywords: Environmental Kuznets curve; Local indeterminacy; Environmental taxes; Pollution; Public abatement (search for similar items in EconPapers)
JEL-codes: H23 O41 Q28 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:11:p:1700-1717

DOI: 10.1016/j.jedc.2012.05.004

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