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Economic Growth and Environmental Degradation When Preferences are Non-homothetic

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  • Jaime Alonso-Carrera

    (Universidad de Vigo)

  • Carlos Miguel

    (Universidad de Vigo)

  • Baltasar Manzano

    (Universidad de Vigo)

Abstract

We study the dynamics of pollution in an economic growth model with non-homothetic preferences. We characterize the forces that may drive the evolution of the income-pollution relationship along the development process. In particular, we disentangle the standard accumulation mechanism, which determines the intertemporal allocation of pollution, from a mechanism based on the non-homotheticity of preferences, which leads the intratemporal allocation of expenditure between consumption and pollution abatement to depend on income. As the economy develops and aggregate income grows up, the fraction of income devoted to abatement increases if the income elasticity of abatement is larger than unity. In this case, the pollution may decrease with income even when the elasticity of pollution with respect to abatement is smaller than the elasticity of pollution with respect to emissions. We numerically illustrate how this demand-based mechanism determines the dynamic relationship between pollution and aggregate income.

Suggested Citation

  • Jaime Alonso-Carrera & Carlos Miguel & Baltasar Manzano, 2019. "Economic Growth and Environmental Degradation When Preferences are Non-homothetic," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(3), pages 1011-1036, November.
    • Handle: RePEc:kap:enreec:v:74:y:2019:i:3:d:10.1007_s10640-019-00357-4
    DOI: 10.1007/s10640-019-00357-4
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    More about this item

    Keywords

    Pollution; Abatement; Non-homothetic preferences; Economic growth;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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