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Economic Growth and Environmental Degradation When Preferences are Non-homothetic

  • Jaime Alonso-CarreraEmail author
  • Carlos de Miguel
  • Baltasar Manzano
Article
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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.

Keywords

Pollution Abatement Non-homothetic preferences Economic growth 

JEL Classification

Q2 D62 H23 

Notes

Acknowledgements

Financial support from the Spanish Government and FEDER through grant RTI2018-093365-B-100 is gratefully acknowledged. The paper has benefited from comments by participants in the 5th Workshop on Energy and Environmental Economics (A Toxa), SAEe 2013 Meeting (Santander) and in the seminar at Groupe d’Analyse et de Théorie Economique (Lyon).

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Copyright information

© Springer Nature B.V. 2019

Authors and Affiliations

  1. 1.Departamento de Fundamentos del Análisis Económico, Facultad de Ciencias Económicas y EmpresarialesUniversidad de VigoVigoSpain
  2. 2.Departamento de Fundamentos del Análisis Económico and REDE, Facultad de Ciencias Económicas y EmpresarialesUniversidad de VigoVigoSpain

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