Pollution effects on preferences: A unified approach

Stephano Bosi (), David Desmarchelier and Lionel Ragot ()
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Stephano Bosi: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne

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Abstract: In this paper, we introduce a unified Ramsey model where pollution has an impact on preferences and affects both consumption demand and labor supply. Pollution comes from production activities and is viewed as a stock variable with a strong inertia. A government is introduced and levies a proportional tax on production to finance depollution expenditure. We find two interesting results when pollution raises the consumption demand (compensation effect). First, in the long run, a higher green-tax rate increases the pollution level at the steady state (green paradox) when pollution raises the labor supply (disenchantment effect). Second, in the short run, local indeterminacy can arise through a Hopf bifurcation when pollution lowers the labor supply (leisure effect) even if pollution has a strong inertia.

Keywords: Endogenous labor supply; Green paradox; Limit cycle; Pollution; Ramsey model (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

Published in Journal of Public Economic Theory, 2019, 21 (3), pp.371-399. ⟨10.1111/jpet.12348⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02174027

DOI: 10.1111/jpet.12348

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