Do Technology, Leisure Specification and Preferences Matter in the Environment-Growth Nexus with Education?
23 Pages Posted: 15 Aug 2014 Last revised: 19 Sep 2014
Date Written: August 13, 2014
Abstract
This article investigates how environmental tax impacts growth driven by education when pollution arises from output production. It challenges the results found in the existing literature by highlighting the role played by technology of production, leisure specification and consumer preferences. Its contribution is twofold. i) Leisure specification matters. Whatever the utility function and production technology, if leisure does not enter utility function or enters utility as quality leisure defined by level of human capital times leisure, the environmental tax does not affect long-run rate of growth. ii) Technology and preferences interplay to determine the impact of the environmental tax. Whatever the utility function, when physical and human capital are perfect substitutes in output production, growth is negatively influenced by the environmental tax. When utility is of King, Plosser, and Rebelo (1988) form, the environmental tax on final output will decrease (respectively increase) long term growth if physical and human capitals are complementary (respectively substitutable). When utility is of Greenwood, Hercowitz, and Huffman (1988) form, the environmental tax rises long term human capital accumulation, except if physical and human capital are perfect substitutes.
Keywords: Growth, Environment, Tax, Human capital
JEL Classification: H2, O4, Q00
Suggested Citation: Suggested Citation