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Economic Growth, Environmental Damage and Sustainable Taxation

In: Endogenous Growth, Market Failures and Economic Policy

Author

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  • Martin Zagler

    (Vienna University of Economics & BA)

Abstract

This chapter describes the fallacy and the dynamics of an ecological constraint in a Ramsey economy. It is based on the Solow-Ramsey-Cass-Koopmans model of exogenous growth, with the extension of an environmental constraint. The model describes the theoretical problems that one encounters with a scarce and nonrenewable resource. As this already changes results in a converging environment, the effect would be even larger in a model of long-run growth. Four different settings are examined, with finite and infinite population, an infinity of atomistic firms operating under decreasing returns to scale, and a finite number of firms with constant or increasing returns to scale. I show how policy can prevent society from an ecological collapse, but only a second-best policy can assure this. Contrary to common belief, I find that government expenditure for environmental care is far more important than ecological taxes and trading of pollution certificates.

Suggested Citation

  • Martin Zagler, 1999. "Economic Growth, Environmental Damage and Sustainable Taxation," Palgrave Macmillan Books, in: Endogenous Growth, Market Failures and Economic Policy, chapter 2, pages 19-28, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-27129-0_2
    DOI: 10.1007/978-1-349-27129-0_2
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