Environmental policies and stagnation in a two-country economy

Masako Ikefuji and Yoshiyasu Ono

Economic Modelling, 2024, vol. 141, issue C

Abstract: Global warming poses a serious and acute threat to our planet. However, negotiations over the allocation of permissible carbon emissions often lead to conflicts of interest between developed and developing countries. Developing countries claim that global warming results from long-term pollution emissions by developed countries, while developed countries demand that developing countries should make adequate efforts to reduce carbon emissions. Both developed and developing countries generally agree that stricter emission limits will strain their economies due to the associated extra abatement costs. Using a two-country model with wealth preferences, we find that the impacts of a country's emission limit on real consumption and pollution emissions in both countries vary depending on the combination of their business situations. If both countries achieve full employment, one country's stricter emission limit decreases real consumption in both, as expected. However, if one country faces aggregate demand stagnation while the other achieves full employment, a stricter emission limit imposed by the stagnant country increases real consumption in both countries.

Keywords: Persistent unemployment; Wealth preference; Pollution; Emission restriction; Clean technology transfer (search for similar items in EconPapers)
JEL-codes: F41 F42 Q52 Q54 Q56 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Environmental Policies and Stagnation in a Two-Country Economy (2023)
Working Paper: Environmental Policies and Stagnation in a Two-Country Economy (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:141:y:2024:i:c:s026499932400261x

DOI: 10.1016/j.econmod.2024.106904

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