The transition from dirty to clean industries: optimal fiscal policy and the environmental Kuznets curve

    Authors

    S. P. Cassou;S. F. Hamilton

    Comments

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    Abbreviated Journal Title

    J.Environ.Econ.Manage.

    Keywords

    environmental quality; endogenous growth; second-best policy; ENDOGENOUS GROWTH; OPTIMAL TAXATION; ECONOMIC-GROWTH; MODELS; EXTERNALITIES; POLLUTION; Business; Economics; Environmental Studies

    Abstract

    This paper investigates privately and socially optimal patterns of economic development in a two-sector endogenous growth model with clean and dirty goods. We consider a second-best fiscal policy framework in which distortionary taxes jointly influence economic growth and environmental quality. In this policy setting, three conditions produce an Environmental Kuznets Curve (EKC): (i) dirty output is bounded; (ii) clean output grows endogenously; and (iii) growth in the dirty sector reduces growth in the clean sector. These conditions do not arise with a consumption externality, but can emerge with a production externality. Endogenous labor supply implications are also investigated. Although not necessary for producing an EKC, endogenous labor supply provides additional linkages that produce an EKC under circumstances in which it would otherwise not appear. (C) 2004 Elsevier Inc. All rights reserved.

    Journal Title

    Journal of Environmental Economics and Management

    Volume

    48

    Issue/Number

    3

    Publication Date

    1-1-2004

    Document Type

    Article

    Language

    English

    First Page

    1050

    Last Page

    1077

    WOS Identifier

    WOS:000224996300003

    ISSN

    0095-0696

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