Global and local indeterminacy and optimal environmental public policies in an economy with public abatement activities

Rafaela Perez and Jesus Ruiz

Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: We study the dynamic properties of an endogenous growth model with pollution in which the government can control the pollution through distorting taxes on the pollutant firms and through public abatement activities. First, we characterize the conditions for indeterminacy of equilibria when the government is benevolent and chooses its tax policy by taking into account the decentralized competitive equilibrium. Under this second best setup we show that two balanced growth paths can be found (one with a low level of pollution and the other with a high level) both of which can be locally indeterminate. Therefore, under indeterminacy, the optimal public policies do not guarantee that the economy will converge towards the steady state characterized by a low level of pollution and neither guarantee that the economy will display, along the transition, low levels of pollution. Second, we show that the central planner solution might also display indeterminacy; in particular, two Pigouvian taxes can be found.

Keywords: Model growth; Pollution; Taxes on the pollutant firms; Tax policy. (search for similar items in EconPapers)
Pages: 25 pages
Date: 2004
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https://eprints.ucm.es/id/eprint/7722/1/0408.pdf (application/pdf)

Related works:
Journal Article: Global and local indeterminacy and optimal environmental public policies in an economy with public abatement activities (2007)
Working Paper: Global and local indeterminacy and optimal environmental public policies in an economy with public abatement activities (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ucm:doicae:0408

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