This paper utilizes the two-period overlapping generations model developed by John and Pecchenino (1994) to examine the impacts of the social security program on environment quality. The main findings are as follows. First, a higher social security benefit leads to a lower environmental quality. Second, the competitive equilibrium is dynamically inefficient in the presence of the consumption externalities. Finally, two kinds of tax scheme, one based on differential environmental taxes and the other based on uniform environmental taxes, are designed to put the economy into the optimal allocation.

This paper investigates the impact of a stricter tax compliance policy on firms’ pollution emissions in the presence of labor market frictions. In contrast to a situation with perfect labor markets, we find that under the right‐to‐manage wage formation, a stricter compliance policy increases emissions when the shadow cost of the emission limit is excluded, whereas it has no impact when the shadow cost is included. With efficient bargaining, a stricter compliance policy decreases (or increases) pollution emissions under employment (wage) orientation but has no impact on pollution emissions under wage neutrality.