Pollution, mortality and time consistent abatement taxes
Aditya Goenka (),
Saqib Jafarey and
Journal of Mathematical Economics, 2020, vol. 88, issue C, 1-15
We study dynamically consistent policy in a neoclassical overlapping generations growth model where pollution externalities undermine health but are mitigated via tax-financed abatement. With arbitrarily constant taxation, two steady states arise: an unstable ‘poverty trap’ and a ‘neoclassical’ steady state near which the dynamics might either be monotonically convergent or oscillating. When the planner chooses a time consistent abatement path that maximizes a weighted intergenerational sum of expected utility, the optimal tax is zero at low levels of capital and then a weakly increasing function of the capital stock. The non-homogeneity of the tax function along with its feedback effect on savings induces additional steady states, stability reversals and oscillations.
Keywords: Time consistency; Pollution; Mortality; Overlapping generations model; Endogenous fluctuations; Optimal environmental policy (search for similar items in EconPapers)
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Working Paper: Pollution, Mortality and Time Consistent Abatement Taxes (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:88:y:2020:i:c:p:1-15
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