The Simple Analytics of the Environmental Kuznets Curve

Abstract

Evidence suggests that some pollutants follow an inverse-U-shaped pattern relative to countries' incomes. This relationship has been called the "environmental Kuznets curve." This paper lays out a simple and straight-forward static model of the microfoundations of the pollution-income relationship. We sho that the environmental Kuznets curve can be derived directly from the technological link between consumption of a desired good and abatement of its undesirable byproduct. The inverse-U shape does not depend on the dynamics of growth, political institutions, or even externalities, and can be consistent with a decentralized economy as well as a Pareto efficient policy.