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The political economy of environmental policy with overlapping generations. (English) Zbl 1405.91413

Summary: A two-sector overlapping generations model illuminates the intergenerational effects of a tax that protects an environmental stock. A traded asset capitalizes the economic returns to future tax-induced environmental improvements, benefiting the current asset owners, the old generation. Absent a transfer, the tax harms the young generation by decreasing their real wage. Future generations benefit from the tax-induced improvement in environmental stock. The principal ntergenerational conflict arising from the tax is between generations alive at the time society imposes the policy, not between generations alive at different times. A Pareto-improving tax can be implemented under various political economy settings.

MSC:

91B62 Economic growth models
91B64 Macroeconomic theory (monetary models, models of taxation)
91B76 Environmental economics (natural resource models, harvesting, pollution, etc.)
91B66 Multisectoral models in economics

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References:

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