dynamic inefficiency in an overlapping generation economy with pollution and health costs
Download
Skip this Video
Download Presentation
Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs

Loading in 2 Seconds...

play fullscreen
1 / 19

Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs - PowerPoint PPT Presentation


  • 68 Views
  • Uploaded on

Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs. Maria-Jose Gutierrez University of the Basque Country Journal of Public Economic Theory, 10 (4), 2008, pp. 563-594. Presented by Juan. Introduction.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs' - burton-nunez


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
dynamic inefficiency in an overlapping generation economy with pollution and health costs

Dynamic Inefficiency in an Overlapping Generation Economy with Pollution and Health Costs

Maria-Jose Gutierrez

University of the Basque Country

Journal of Public Economic Theory, 10 (4), 2008, pp. 563-594

Presented by Juan

introduction
Introduction
  • Environment affects economy through amenity, productivity and health channels
  • Aim of the paper: analyze effects of pollutionon the economy thought health channel forcing increase of health expenditure when old, not affecting productivity of workers.
  • Innovation: 2nd dynamical model done using health channels, 1th to affect old health expenditure and focus on taxes
introduction ii
Introduction II
  • Paper focuses on optimal taxation, not on long run growth effects.
  • Findings:
    • pollution makes more likely CE to be dynamic inefficient.
    • Over accumulation of capital above super golden rule is not PO.
    • Taxes on production and on capital and wages can increase welfare
the model
The model
  • Two period OGM with production
  • Constant population growth
  • Preferences are
  • One unit of labor when young
  • Income from savings when old
  • When old expenditure on consumption and health
  • Pollution costs of elders depend on pollution stock:
  • Firms have CRS:
competitive equilibrium
Competitive equilibrium
  • Agent’s problem
  • FOC
  • Savings
competitive equilibrium ii
Competitive equilibrium II
  • Firms max profits:
  • Market clears:
  • Law of motion:
steady state
Steady State
  • Proposition 1: The SS is a sink if

Then:

Standard Diamond’s model results hold

implications
Implications
  • Higher population growth economies have lower capital and pollution per worker (but higher total).
  • Higher capital depreciation rate leads to less capital and pollution
  • Economies with Higher pollutant technologies and higher toxic pollutants accumulate more capital to pay for health!!!
efficiency
Efficiency
  • CP Problem:
  • FOC:
efficient ss and golden rule
Efficient SS and Golden Rule
  • 2 FOC + 2 constraints in SS define efficient capital per capita, c1, c2, and pollution stock per capita.
  • The golden rule is:
  • Not true that above golden rule economy is dynamically inefficient!!
efficient ss and golden rule ii
Efficient SS and Golden Rule II
  • Lemma 1: If

then there are always efficient capital ratios that exceed the golden rule capital ratio. Otherwise, the maximum efficient capital ratio is given by the golden rule allocation

  • Idea: double effect of planner’s discount rate (R=0): the lower the higher the savings (transfer consumption to the future), but also less pollution must be transmitted to the future, thus less capital less saving.
efficient ss and golden rule iii
Efficient SS and Golden Rule III
  • Super golden rule:
  • Proposition 2: Above capital of super golden rule the economy is dynamically inefficient
  • Idea: Pollution is cumulative, when delta is 1, super golden and golden rules are the same.
  • Let kmax the capital ratio associated with central planner:

kmax

kG

kSG

efficient ss and golden rule iv
Efficient SS and Golden Rule IV
  • Proposition 3: The higher pollution externalities, the higher the competitive stationary capital ratio is and the lower the supergolden rule capital ratio is.
  • Idea: First part is by proposition 1(more capital to pay more healthcare), second is because kSG is decreasing in the pollution parameters
taxes on production
Taxes on Production
  • Tax per unit of output and lump sum transfer to youngs and or olds.
  • Competitive equilibrium leads to:
  • Proposition 4: Optimal tax is
taxes on production ii
Taxes on Production II
  • The existence of two sources of inefficiency is the reason for:
  • If CE is efficient without pollution then inclusion of pollution generates an inefficiency in where both young and olds share revenue from tax
  • IF CE was already non-efficient pollution increases the problem and only olds receive revenue from taxes.
taxes on capital and wages
Taxes on Capital and Wages
  • Taxes are levied on consumers so firms face same problem.
  • Proposition 5: Golden rule allocation can be achieved by imposing taxes and transfers to old:
  • If the economy over accumulates capital without pollution then:
  • Olds and youngs can be tax payers or receivers
taxes on production vs on capital and wages
Taxes on production vs. on capital and wages
  • Idea: agents would prefer less amount of taxes to be paid.
  • Proposition 6: Youngs and elderly agents pay more taxes with the capital-wage system than with the production tax system.
  • Idea: Production tax scheme is superior in an electoral context
ad