Pollution Abatement as a Source of Stabilization and Long-Run Growth

Abstract

In a two-period overlapping-generations model with production, we consider the damaging impact of environmental degradation on health and consequently life expectancy. Despite the presence of social constant returns to capital, which would otherwise generate unbounded growth, when pollution is left unabated, the economy cannot achieve such a path. Instead, it converges either to a stationary level of capital per worker or to a cycle in which capital per worker oscillates permanently. The government's involvement in environmental preservation proves crucial for both short-term dynamics and long-term prospects of the economy. Particularly, an active policy of pollution abatement emerges as an important engine of long-run economic growth. Furthermore, by eliminating the occurrence of limit cycles, pollution abatement is also a powerful source of stabilization.

The Cost of Pollution on Longevity, Welfare and Economic Stability

“…Second, Palivos and Varvarigos (2015) is also closely related to our paper. They propose a framework with learning-by-doing productive externalities and a longevity variable that is positively affected by public health but negatively impacted by pollution.…”

“…For tractability reasons, let us consider the following explicit function for life expectancy that satisfies usual properties (see for instance Blackburn and Cipriani 2002;Cervellati and Sunde 2005;Chakraborty 2004;Castelló-Climent and Doménech 2008;Palivos and Varvarigos 2015):…”

Longevity, pollution and growth

“…Jouvet et al (2010) is also linked to our paper, but in contrast to us, dynamics are not examined. Moreover, our paper is close to Varvarigos (2009) and Palivos and Varvarigos (2012), as they consider that longevity is positively affected by public spending and negatively by pollution. But, different from them, we consider dynamics of the environmental variable since pollution is no longer a flow but a stock that depends on past pollution flows, production and public cleaning activities.…”

Environment, Health and Labor Market

“…Economic literature dealt with this empirical evidence to demonstrate that environmental policy, limiting pollution, could generate a double dividend by improving health (for the most recent contributions see Bretschger and Vinogradova, 2017;Palivos and Varvarigos, 2017;Klarl, 2016;Chen et al, 2015;Wang et al, 2015).…”