POLLUTION AND WELFARE IN THE PRESENCE OF INFORMAL SECTOR: IS THERE ANY TRADE-OFF?
Sarbajit Chaudhuri ()
Others from EconWPA
We present a three-sector general equilibrium model with an informal sector, which produces an intermediary for the formal sector, and analyze the effects of different policies on the environmental standard and welfare of the economy. Since the informal manufacturing sector creates pollution, higher the use of informal sector product, higher is the pollution created and higher the discrepancy between actual and permissible levels of pollution, so that the emission tax payable by the formal sector is also higher. The efficiency of a representative worker is inversely related to the level of pollution. In this setup, we show that even if the permissible level of pollution is reduced, the polluting sector may expand and worsen the environmental standard. However, this policy may be welfare improving. On the other hand, an inflow of foreign capital may reduce the pollution level but affect welfare adversely. The paper finds that there might exist a trade-off between the economy’s twin objectives of lowering the level of pollution and improving national welfare. These results are new in the trade and environment literature.
Keywords: Pollution; informal sector; pollution emission tax; permissible level of pollution; foreign capital (search for similar items in EconPapers)
JEL-codes: O17 O22 O33 O54 Q25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env
Note: Type of Document - pdf; pages: 25
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpot:0510012
Access Statistics for this paper
More papers in Others from EconWPA
Series data maintained by EconWPA ().