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POLLUTION ABATEMENT AS A SOURCE OF STABILIZATION AND LONG-RUN GROWTH

Published online by Cambridge University Press:  17 February 2016

Theodore Palivos  and
Dimitrios Varvarigos
Theodore Palivos*
Affiliation:
Athens University of Economics and Business
Dimitrios Varvarigos
Affiliation:
University of Leicester
*
Address correspondence to: Theodore Palivos, Department of Economics, Athens University of Economics and Business, 76 Patission Str., Athens 10434, Greece; e-mail: tpalivos@aueb.gr.
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Abstract

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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.

Keywords

GrowthLong-Run CyclesEnvironmental QualityPollution Abatement
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Issue 3 , April 2017 , pp. 644 - 676
Copyright
Copyright © Cambridge University Press 2016 

Footnotes

We would like to thank two anonymous referees and an associate editor of this journal, seminar participants at the Université d' Auvergne (Clermond-Ferrand), the Universidad Complutense de Madrid, and the University of Leicester, and participants at the “Conference on Research on Economic Theory and Econometrics” (Tinos 2010), the conference on “Sustainable Growth, Technological Progress and the Environment” (Louvain-la-Neuve 2011), and the workshop in “Advances in Economic Growth” (St Andrews 2011) for comments on earlier drafts of this paper.

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