The role of taxation in an integrated economic-environmental model: a dynamical analysis

Fausto Cavalli (), Alessandra Mainini () and Daniela Visetti ()
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Fausto Cavalli: University of Milano-Bicocca
Alessandra Mainini: Catholic University
Daniela Visetti: University of Milano-Bicocca

Decisions in Economics and Finance, 2024, vol. 47, issue 2, No 13, 597-626

Abstract: Abstract We propose a model with economic and environmental domains that interact with each other. The economic sphere is described by a Solow growth model, in which productivity is not exogenous but negatively affected by the stock of pollution that stems from the production process. A regulator can charge a tax on production, and the resources collected from taxation are used to reduce pollution. The resulting model consists of a two dimensional discrete dynamical system, and we study the role of taxation from both a static and a dynamical point of view. The focus is on the determination of the conditions under which taxation has a positive effect on the environment and leads to economic growth. Moreover, we show that a suitable environmental policy can allow recovering both local and global stability of the steady states. On the contrary, we show that, if the policy is not adequate, the system can exhibit endogenous oscillating and chaotic behavior and multistability phenomena.

Keywords: Economic-environmental modelling; Environmental policy; Complex dynamics; Multistability; Nonlinear analysis; O44; Q56; C62 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10203-024-00449-x

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