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Regime switching and the shape of the emission-income relationship

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  • Aslanidis, Nektarios
  • Xepapadeas, Anastasios

Abstract

We explore the idea of regime switching as a new methodological approach in the analysis of the emission-income relationship. We formalize the idea by using a simple static model of profit maximization where above a threshold income level a more stringent environmental policy could induce a decreasing emission-income relationship. At the empirical level we estimate such a regime switching model and we estimate an inverse-V-shaped emission-income relationship for ambient concentrations of SO2 and smoke. We estimate thresholds which can be viewed as turning points, and which occur at reasonable values.

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  • Aslanidis, Nektarios & Xepapadeas, Anastasios, 2008. "Regime switching and the shape of the emission-income relationship," Economic Modelling, Elsevier, vol. 25(4), pages 731-739, July.
    • Handle: RePEc:eee:ecmode:v:25:y:2008:i:4:p:731-739
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