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Time-separable Utility, Leisure and Human Capital Accumulation: What New Implications for the Environment-Growth Nexus?

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  • Xavier Pautrel

    (Nantes Atlantique Université Laboratoire d’Économie et de Management de Nantes (LEMNA), Institut d’Économie et de Management de Nantes - IEA)

Abstract

Using a time-separable utility function where leisure is introduced through the disutility of working time and is adjusted for quality, as measured by human capital to capture home production, we demonstrate that the environmental policy is harmful for growth. A tighter environmental tax reduces the incentives to educate by increasing leisure time and lowers the steady-state growth rate and lifetime welfare, whatever the source of pollution. We also demonstrate that the intertemporal elasticity of substitution in labor supply plays a crucial role in the marginal impact of the environmental tax on growth and welfare. When the positive influence of human capital is added into preferences (by explicitly modelling the home production sector), we find that the environmental policy promotes steady-state growth. This result challenges the finding by Hettich (1998) according to which, in the presence of leisure, the environmental tax does not affect human capital accumulation if the source of pollution is output.

Suggested Citation

  • Xavier Pautrel, 2009. "Time-separable Utility, Leisure and Human Capital Accumulation: What New Implications for the Environment-Growth Nexus?," Working Papers 2009.104, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2009.104
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    References listed on IDEAS

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    Cited by:

    1. Basseti, Thomas & Benos, Nikos & Karagiannis, Stelios, 2010. "How policy can influence human capital accumulation and environment quality," MPRA Paper 21754, University Library of Munich, Germany.

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    More about this item

    Keywords

    Leisure; Human Capital; Environmental Tax;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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