Economic Growth and Environmental Degradation When Preferences are Non-homothetic

Jaime Alonso-Carrera (), Carlos de Miguel and Baltasar Manzano

Environmental & Resource Economics, 2019, vol. 74, issue 3, No 5, 1036 pages

Abstract: Abstract We study the dynamics of pollution in an economic growth model with non-homothetic preferences. We characterize the forces that may drive the evolution of the income-pollution relationship along the development process. In particular, we disentangle the standard accumulation mechanism, which determines the intertemporal allocation of pollution, from a mechanism based on the non-homotheticity of preferences, which leads the intratemporal allocation of expenditure between consumption and pollution abatement to depend on income. As the economy develops and aggregate income grows up, the fraction of income devoted to abatement increases if the income elasticity of abatement is larger than unity. In this case, the pollution may decrease with income even when the elasticity of pollution with respect to abatement is smaller than the elasticity of pollution with respect to emissions. We numerically illustrate how this demand-based mechanism determines the dynamic relationship between pollution and aggregate income.

Keywords: Pollution; Abatement; Non-homothetic preferences; Economic growth (search for similar items in EconPapers)
JEL-codes: D62 H23 Q2 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10640-019-00357-4

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