Environmental taxation, health and the life-cycle

Nathalie Mathieu-Bolh (1) , Xavier Pautrel (2)

1 University of Vermont [Burlington]
2 LEMNA - Laboratoire d'économie et de management de Nantes Atlantique

We build a model that takes into consideration the evolution of health over the life cycle and its consequences on individual optimal choices. In this framework, the effects of environmental taxation are not limited to the traditional negative crowding-out and positive productivity effects. We show that environmental taxation generates new general equilibrium effects ignored by previous contributions. Indeed, as the environmental tax improves the health profile over the life-cycle, it influences saving, labor supply, and retirement. We also show that whether those general equilibrium effects are positive or negative for the economy crucially depends on the degree of substitutability between young and old labor. Our numerical examples suggest that ignoring those new effects may result in large overstatement of the negative effect of an increase in environmental taxation on output, and understatement of the positive effect on welfare. ∗

Mots clés: Health; environmental policy; economic growth

Domaines: Economies et finances; Gestion et management

Nathalie Mathieu-Bolh, Xavier Pautrel. Environmental taxation, health and the life-cycle. 2014. ⟨hal-00990256v2⟩