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Optimal health and environmental policies in a pollution-growth nexus

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  • Wang, Min
  • Zhao, Jinhua
  • Bhattacharya, Joydeep

Abstract

This paper shows how policies aimed at insuring health risks and those intended to improve the environment are (and should be) deeply intertwined. In the model economy inspired by recent Chinese experience, pollution raises the likelihood of future, poor health prompting households to save more so as to self-insure against anticipated medical expenses. Increased household saving generates more capital while capital use by firms generates more pollution. Along the transition, such a “pollution-growth nexus” may be attractive from a capital-accumulation perspective; however, rising pollution, via the health channel, hurts welfare. Both insurance and environmental policies affect capital accumulation and can have additional dynamic benefits. The availability of private health insurance to top up pay-as-you-go coverage of medical bills along with a Pigouvian tax on emissions and a profit tax can replicate the first best.

Suggested Citation

  • Wang, Min & Zhao, Jinhua & Bhattacharya, Joydeep, 2015. "Optimal health and environmental policies in a pollution-growth nexus," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 160-179.
    • Handle: RePEc:eee:jeeman:v:71:y:2015:i:c:p:160-179
    DOI: 10.1016/j.jeem.2015.02.006
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    2. Xavier Pautrel, 2018. "Environmental Policy and Health in the Presence of Labor Market Imperfections," TEPP Working Paper 2018-09, TEPP.
    3. Sichao Wei & David Aadland, 2021. "Pollution permits, green taxes, and the environmental poverty trap," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 1032-1052, May.
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    6. Dong, Qichen & Chen, Fanglin & Chen, Zhongfei, 2020. "Airports and air pollutions: Empirical evidence from China," Transport Policy, Elsevier, vol. 99(C), pages 385-395.
    7. Natacha Raffin & Thomas Seegmuller, 2017. "The Cost of Pollution on Longevity, Welfare and Economic Stability," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 683-704, November.
    8. Yasuhiro Nakamoto & Akihiko Yanase, 2022. "Pollution externalities and corrective taxes in a dynamic small open economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(3), pages 667-703, June.
    9. Lucas Bretschger & Alexandra Vinogradova, 2017. "Human Development at Risk: Economic Growth with Pollution-Induced Health Shocks," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 481-495, March.
    10. Hassan, Mahmoud & Oueslati, Walid & Rousselière, Damien, 2020. "Environmental taxes, reforms and economic growth: an empirical analysis of panel data," Economic Systems, Elsevier, vol. 44(3).
    11. Dao, Nguyen Thang & Edenhofer, Ottmar, 2018. "On the fiscal strategies of escaping poverty-environment traps towards sustainable growth," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 253-273.
    12. Goenka, Aditya & Jafarey, Saqib & Pouliot, William, 2020. "Pollution, mortality and time consistent abatement taxes," Journal of Mathematical Economics, Elsevier, vol. 88(C), pages 1-15.
    13. Andersen, Torben M. & Bhattacharya, Joydeep & Liu, Pan, 2020. "Resolving intergenerational conflict over the environment under the Pareto criterion," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).
    14. Abdulla, Eman & Lim, King Yoong & Morris, Diego & Saliba, Faten, 2022. "Climate Change, Gender Equality, and Firm-Level Innovation : Cross-Country Evidence," The Warwick Economics Research Paper Series (TWERPS) 1429, University of Warwick, Department of Economics.
    15. Andersen, Torben M. & Bhattacharya, Joydeep & Liu, Pan, 2018. "A way to resolve intergenerational conflict over the environment under the Pareto criterion using green bonds," ISU General Staff Papers 201808240700001070, Iowa State University, Department of Economics.
    16. Wei-Bin Zhang, 2015. "Oscillations in a Growth Model with Capital, Technology and Environment with Exogenous Shocks," Academicus International Scientific Journal, Entrepreneurship Training Center Albania, issue 12, pages 73-93, July.
    17. Lucas Bretschger & Elise Grieg & Paul J. J. Welfens & Tian Xiong, 2020. "COVID-19 infections and fatalities developments: empirical evidence for OECD countries and newly industrialized economies," International Economics and Economic Policy, Springer, vol. 17(4), pages 801-847, October.
    18. Zhao Zhang & Caoyuan Ma & Aiping Wang, 2023. "Environmental Governance, Public Health Expenditure, and Economic Growth: Analysis in an OLG Model," IJERPH, MDPI, vol. 20(4), pages 1-21, February.
    19. Lin, Zifei & Xu, Wei & Yue, Xiaole & Han, Qun, 2017. "Study on the effect of environmental pollution based on a fractional derivative resource depletion model," Chaos, Solitons & Fractals, Elsevier, vol. 104(C), pages 705-715.

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    More about this item

    Keywords

    Precautionary savings; Pollution; Health; Economic growth;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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