(City University London) (2011)
BibTeX
@MISC{Goenka11(cityuniversity,
author = {Aditya Goenka and Saqib Jafarey and William Pouliot},
title = {(City University London)},
year = {2011}
}
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Abstract
Abstract: We study an overlapping generations economy with uncertain lifetimes in which economic activity causes air pollution, lowering survival probability. Economic growth by itself increases survival probability. We show that if the growth-survival re-lationship does not satisfy Inada conditions at zero income, then a non-convexity arises, causing two interior steady states: a stable, high-income steady state and an unstable poverty trap. A uniform increase in abatement taxes can cause the poverty trap to widen while increasing incomes at the high steady state. When abatement policy is chosen opti-mally, we show that the abatement tax is a non-homogeneous and increasing function of the capital stock. This leads to a variety of dynamic possibilities, including non-existence of steady state equilibrium as well as multiple steady state equilibria where a unique steady state existed in the exogenous setting.
Keyphrases
city university london abatement tax survival probability growth-survival re-lationship capital stock unique steady state interior steady state economic growth dynamic possibility poverty trap economic activity uniform increase multiple steady state equilibrium exogenous setting uncertain lifetime high-income steady state high steady state overlapping generation economy steady state equilibrium inada condition non-convexity arises abatement policy air pollution unstable poverty trap
