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Environmental fiscal polices might be ineffective to control pollution

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2003
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Facultad de Ciencias Económicas y Empresariales. Instituto Complutense de Análisis Económico (ICAE)
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Abstract
In a one sector growth model with pollution in the utility function, the competitive equilibrium can be indeterminate for plausible values of the intertemporal substitution elasticity of consumption and under constant returns to scale. The tax rate on pollution does not enter the condition characterizing indeterminacy. This means that the government is not able to control emissions in the economy by using environmental policies. Non-separability between private consumption and pollution in the utility function is crucial for this result.
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Econometría (Economía)
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5302 Econometría
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Aiyagari, S.R., ”The econometrics of indeterminacy: an applied study, a comment”, Carnegie-Rochester Conf. Ser. Public Policy 43 (1995), 273-282. Benhabib, J. and R.E.A. Farmer, ”Indeterminacy and sector specific externalities”, Journal of Monetary Economics 37 (1996), 421-443. Benhabib, J. and R.E.A. Farmer (1999), ”Indeterminacy and Sunspots in Macroeconomics”. Handbook of Macroeconomics, J. Taylor and M. Woodford, eds, North Holland. Benett, R.L. and R.E.A. Farmer, ”Indeterminacy with non-separable utility”, Journal of Economic Theory 93 (2000), 118-143. Browing, M.J. (1982), ”Profit function representations for consumer preferences”, Bristol University Discussion Paper, 82/125. Browing, Deaton and Irish (1985), ”A profitable approach to labor supply and commodity demands over the life-cycle” Econometrica, 53, 503-543. Farmer, R.E.A. and J.T. Guo, Real business cycles and the animal spirits hypothesis, Journal of EconomicTheory 63 (1994), 42-73. Fernández, E., A. Novales and J. Ruiz (2003), ”Indeterminacy under non-separability of public consumption and leisure in the utility function”, Economic Modelling, forthcoming. Hansen(1985), ”Indivisble labor and the bussiness cycle”, Journal of Monetary Economics, 16, 309-327.
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https://hdl.handle.net/20.500.14352/64515
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