Abatement Technology and the Environment-Growth Nexus with Education

Abstract

The present paper adopts a Yaari (1965)-Blanchard (1985 overlapping generations model with Lucas (1988)'s human capital accumulation in order to examine how environmental taxation influences growth. It challenges conventional result that tighter environmental tax has either no long term effect at all, or has a positive long term effect. In the case of Cobb-Douglas production functions and logarithmic utilities, this paper demonstrates that the technology used in the abatement sector determines the existence and direction of the growth effect. In the case of output taxation, if the abatement sector is relatively more (respectively less) intensive in human capital than the final output sector, tighter environmental tax increases (resp. reduces) growth in the long term. This result always holds true for finite life expectancy but for infinite life expectancy it only holds true when the labour supply is endogenous.The transitional impact of tighter environmental policy is also investigated. We find that the magnitude of the short term effects of environmental taxation varies according to the technology used in the abatement and final output sectors, and that there is a reverse trade-off between the short and the long term effects.

Environmental Policy and Growth When Environmental Awareness Is Endogenous

“…Our results contribute to the literature examining the effects of environmental policies on sustainable development [e.g., Ono (2003), Grimaud and Tournemaine (2007), Prieur and Bréchet (2013), Pautrel (2015)]. However, we differ from the majority of this literature by calling attention to the role of an environmental policy mix that is composed of support for both environmental protection as well as education.…”

“…For example, Gradus and Smulders (1993) conclude that an improvement in environmental quality can affect the long-term growth of the economy only when pollution directly affects human capital accumulation. More recently, Grimaud and Tournemaine (2007) and Pautrel (2012Pautrel ( , 2015 find that a tighter environmental tax can favor education and hence growth in the long run. This occurs because the tax makes polluting activities less attractive compared to a human capital intensive sector.…”