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Environmental policy and growth when inputs are differentiated in pollution intensity

Author

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  • Francesco Ricci

    (LERNA - Economie des Ressources Naturelles - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - CEA - Commissariat à l'énergie atomique et aux énergies alternatives, UCP - Université de Cergy Pontoise - Université Paris-Seine)

Abstract

Environmental policy affects the distribution of market shares if intermediate goods are differentiated in their pollution intensity. When innovations are environment-friendly, a tax on emissions skews demand towards new goods which are the most productive. In this case, the tax has to increase along a balanced growth path to keep the market shares of goods of different vintages constant. Comparing balanced growth paths, we find that tightening the policy stance spurs innovation, because it increases the market share of recent vintages, and promotes environment-friendly technological progress. As a result the cost of environmental policy in terms of slower growth is weaker.

Suggested Citation

  • Francesco Ricci, 2007. "Environmental policy and growth when inputs are differentiated in pollution intensity," Post-Print hal-02655437, HAL.
    • Handle: RePEc:hal:journl:hal-02655437
    DOI: 10.1007/s10640-006-9076-1
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    More about this item

    Keywords

    ENVIRONMENTAL POLICY; ENDOGENOUS GROWTH; INDUCED TECHNOLOGICAL CHANGE; POLLUTION;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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