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Pollution, Mortality and Time Consistent Abatement Taxes

Aditya Goenka (), Saqib Jafarey () and William Pouliot
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Saqib Jafarey: City, University of London

Discussion Papers from Department of Economics, University of Birmingham

Abstract: 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 maximises 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; poverty traps; endogenous fluctuations; optimal environmental policy. (search for similar items in EconPapers)
JEL-codes: E32 H21 H23 O11 O13 O23 O44 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2019-10
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env, nep-hea, nep-mac, nep-res and nep-upt
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Journal Article: Pollution, mortality and time consistent abatement taxes (2020) Downloads
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