Environmental Quality, the Macroeconomy, and Intergenerational Distribution

CentER Discussion Paper No. 2004-73

34 Pages Posted: 5 Jan 2005

See all articles by Ben J. Heijdra

Ben J. Heijdra

University of Groningen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Jan Peter Kooiman

ABN AMRO Bank - Corporate Finance / Financial Engineering

Jenny E. Ligthart

Tilburg University - CentER, Department of Economics; University of Groningen - Faculty of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 2004

Abstract

The paper studies the dynamic allocation effects and intergenerational welfare consequences of environmental taxes. To this end, environmental externalities are introduced in a Blanchard-Yaari overlapping generations model of a small open economy. A rise in environmental taxes-taking into account pre-existing distortionary taxes and endogenous labor supply - is shown to yield an effciency gain if agents care enough for the environment. The benefts are unevenly distributed across generations because agents are heterogeneous in their capital ownership. An accompanying debt policy can be designed prescribing debt accumulation at impact and debt redemption in the new steady state - to ensure everybody gains to the same extent. With lump-sum recycling of environmental tax revenue, aggregate employment is unaffected in the short run, but falls in the long run. It raises environmental quality more in the long run than in the short run. Recycling revenue through a cut in labor taxes, however, is shown to yield a rise in employment in the short run, which disappears during transition. In the new steady state, environmental quality is higher at the expense of a lower level of employment.

Keywords: Environment, macroeconomics, distribution, environmental tax, national debt

JEL Classification: D60, H23, H63, Q28

Suggested Citation

Heijdra, Ben J. and Kooiman, Jan Peter and Ligthart, Jenny E., Environmental Quality, the Macroeconomy, and Intergenerational Distribution (June 2004). CentER Discussion Paper No. 2004-73. Available at SSRN: https://ssrn.com/abstract=607001 or http://dx.doi.org/10.2139/ssrn.607001

Ben J. Heijdra (Contact Author)

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
+31 50 363 7303 (Phone)
+31 50 363 7337 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Jan Peter Kooiman

ABN AMRO Bank - Corporate Finance / Financial Engineering ( email )

Gustav Mahlerlaan 10
Amsterdam, 1082 PP
Netherlands
+31 20 628 10 51 (Phone)
+31 20 629 47 79 (Fax)

Jenny E. Ligthart

Tilburg University - CentER, Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 8755 (Phone)
+31 13 466 4032 (Fax)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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