Pollution and Economic Growth

Eric O'N. Fisher, The Ohio State University
Charles van Marrewijk, Erasmus University of Rotterdam

Article comments

Copyright © 1998 Taylor & Francis. This is an electronic version of an article published in Journal of International Trade and Economic Development. The definitive version is available at http://dx.doi.org/10.1080/09638199800000004.

NOTE: At the time of publication, the author Eric O'N. Fisher was not yet affiliated with Cal Poly.

Abstract

We analyse a model of overlapping generations in which clean air, a pure public good, is used as a private input into production. Although production exhibits constant returns to scale. endogenous growth can occur. In a laissez-faire equilibrium, firms generate rents that are the value of the pollution they create. These rents crowd out investment and slow economic growth. Such an equilibrium may not support Pareto optimal allocations, but a Pigouvian tax does. Hence, a pollution tax can yield a double dividend because it reduces pollution and increases growth.