Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs

María-José Gutiérrez

No E2004/38, Economic Working Papers at Centro de Estudios Andaluces from Centro de Estudios Andaluces

Abstract: We analyze an overlapping generations model in which pollution arises, in an accumulative way, from production. Households do not care directly about the environment, however pollution makes them incur health costs when they are elderly. We show that the presence of pollution makes the economy more likely to be dynamically inefficient. For these cases we analyze two kinds of tax scheme: one based on production taxes and the other based on capital and wage taxes. We show how to design both schemes in order to put the economy into the golden rule allocation. We also show that under the production tax scheme young and elderly agents pay less taxes (or receive more transfers) than under the capital and wage tax system.

Keywords: Dynamic inefficiency; Externalities; Health costs; Overlapping generations; Pollution; Taxes. (search for similar items in EconPapers)
JEL-codes: D62 D91 H21 Q25 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2004
New Economics Papers: this item is included in nep-dge and nep-hea
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Journal Article: Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cea:doctra:e2004_38

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