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Environmental Quality, Public Debt and Economic Development

Mouez Fodha () and Thomas Seegmuller ()

Environmental & Resource Economics, 2014, vol. 57, issue 4, 487-504

Abstract: This article analyzes the consequences on capital accumulation and environmental quality of environmental policies financed by public debt. A public sector of pollution abatement is financed by a tax or by public debt. We show that if the initial capital stock is high enough, the economy monotonically converges to a long-run steady state. On the contrary, when the initial capital stock is low, the economy is relegated to an environmental poverty trap. We also explore the implications of public policies on the trap and on the long-run stable steady state. In particular, we find that government should decrease debt and increase pollution abatement to promote capital accumulation and environmental quality at the stable long-run steady state. Finally, a welfare analysis shows that there exists a level of public debt that allows a long run steady state to be optimal. Copyright Springer Science+Business Media Dordrecht 2014

Keywords: Environmental policies; Pollution abatement; Public debt; Economic development; Poverty trap; H23; H63; Q56 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Environmental Quality, Public Debt and Economic Development (2014)
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