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ENVIRONMENTAL POLICY AND GROWTH WHEN ENVIRONMENTAL AWARENESS IS ENDOGENOUS

Published online by Cambridge University Press:  13 March 2018

Karine Constant  and
Marion Davin
Karine Constant*
Affiliation:
Université Paris Est, ERUDITE
Marion Davin
Affiliation:
CEE-M, Univ. Montpellier, CNRS, INRA, SupAgro
*
Address correspondence to: Karine Constant, Université Paris Est, Erudite, UPEC, 61 avenue du Général de Gaulle, Mail des Mèches, F-94010 Créteil, France; e-mail: [email protected]
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Abstract

This paper examines the relationship between environmental policy and growth when green preferences are endogenously determined by education and pollution. We consider an environmental policy in which the government implements a tax on pollution and recycles the revenue to fund pollution abatement activities and/or an education subsidy (influencing green behaviors). When the sensitivity of agents' environmental preferences to pollution and human capital is high, the economy can converge to a balanced growth path equilibrium with damped oscillations. We show that this environmental policy can both remove the oscillations, associated with intergenerational inequalities, and enhance the long-term growth rate. However, this solution requires that the revenue from the tax rate must be allocated to education and direct environmental protection simultaneously. We demonstrate that this type of mixed-instrument environment policy is an effective way to address environmental and economic issues in both the short and the long run.

Keywords

Environmental PolicyEndogenous GrowthEnvironmental AwarenessEducation
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 3 , April 2019 , pp. 1102 - 1136
Copyright
Copyright © Cambridge University Press 2018 

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Footnotes

We would like to thank the editor and the two anonymous referees for their wise remarks. We are also grateful to Carine Nourry, Thomas Seegmuller, Mouez Fodha, Oded Galor, Natacha Raffin, Katheline Schubert, and Cees Withagen for their helpful comments and to the participants at the conferences OLG Days (2013, Clermont-Ferrand), LAGV (2013, Marseille), PET (2013, Lisbon), SURED (2014, Ascona), FAERE (2014, Montpellier), and of the seminar of UMR Economie Publique (2016, AgroParisTech – INRA). Supports from ANR GREEN-econ (ANR-16-CE03-0005) are acknowledged.

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