Environmental Policy and Inequality: A Matter of Life and Death

Karine Constant (1)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille

This paper analyzes the economic implications of an environmental policy when we take into account the life expectancy of heterogeneous agents. In a framework where everyone suffers from pollution, but health status depends also on individual human capital, we find that the economy may be stuck in a trap where inequalities persistently grow, when the initial level of pollution is too high. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to reduce inequalities and to improve endogenous growth. We obtain that a tighter environmental policy may allow the economy to escape the inequality trap and hence to converge to a long-term equilibrium without inequality, while it enhances the long-term growth rate. However, if inequalities or pollution are initially too high, such a result does not hold for reasonable tax rates.

Mots clés: environmental policy; endogenous growth; human capital; inequality; longevity

Domaines: Economies et finances

Karine Constant. Environmental Policy and Inequality: A Matter of Life and Death. 2015. ⟨halshs-01174052⟩