This paper develops a dynamic real business cycle model that highlights pollution externalities (on welfare and production) and market imperfections and uses it to determine the socially optimal tax policy that encompasses labor income, capital income, and emission taxes. We show that the optimal tax on capital and labor income only addresses the production inefficiency (and is time-invariant), while the tax on the environmental externalities affects both the production inefficiency and the environmental spillovers (and is time-varying). More interestingly, the socially optimal emission tax will be characterized by a Keynesian-like stabilizer that is designed to mitigate business cycle fluctuations, i.e., that will stimulate the economy with a lower emission tax during recessions. In a positive analysis, we show that the beneficial effects arising from pollution taxation will become larger the greater is the degree of the firms' monopoly power. In addition, a triple dividend in terms of improving environmental quality and increasing employment and firms' profit can be simultaneously realized if the environmental production externality is more significant and if the elasticity of intertemporal substitution in consumption is relatively small. Copyright � 2009 Wiley Periodicals, Inc..

No abstract

No abstract

This paper introduces health effects in an endogenous growth model with environmental concerns. To highlight the importance of health effects, we examine the time allocation of households in regard to leisure, labor, and health care, which play a crucial role in affecting the impacts of public abatement and emission taxation. We not only show that the health effect modifies the conventional consequences of environmental policy, but also thoroughly compare the effectiveness of these two distinct environmental policies. We also conduct transition and welfare analyses in a dynamic optimizing model which offers novel policy implications, given that the literature on health effects is silent on these issues.

No abstract