Environmental policy and growth when inputs are differentiated in pollution intensity |
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Authors: | Francesco Ricci |
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Institution: | (1) Université de Cergy-Pontoise (THEMA), 33 bd du Port, 95011 Cergy-Pontoise, France;(2) Toulouse School of Economics, University of Toulouse (LERNA), 21 allée de Brienne, 31000 Toulouse, France |
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Abstract: | Environmental policy affects the distribution of market shares if intermediate goods are differentiated in their pollution intensity. When innovations are environment-friendly, a tax on emissions skews demand towards new goods which are the most productive. In this case, the tax has to increase along a balanced growth path to keep the market shares of goods of different vintages constant. Comparing balanced growth paths, we find that tightening the policy stance spurs innovation, because it increases the market share of recent vintages, and promotes environment-friendly technological progress. As a result the cost of environmental policy in terms of slower growth is weaker. |
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Keywords: | Endogenous growth Environmental policy Induced technological change |
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