The Political Economy of Environmental Policy with Overlapping Generations

23 Pages Posted: 30 Jul 2014

See all articles by Larry S. Karp

Larry S. Karp

University of California, Berkeley

Armon Rezai

New School University

Multiple version iconThere are 2 versions of this paper

Date Written: August 2014


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 intergenerational 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.

Suggested Citation

Karp, Larry S. and Rezai, Armon, The Political Economy of Environmental Policy with Overlapping Generations (August 2014). International Economic Review, Vol. 55, Issue 3, pp. 711-733, 2014. Available at SSRN: or

Larry S. Karp (Contact Author)

University of California, Berkeley ( email )

Dept. of Agriculture & Resource Economics
313 Giannini Hall
Berkeley, CA 94720
United States
510-643-8911 (Fax)

Armon Rezai

New School University

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5th Floor
New York, NY 10027
United States

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