Environmental policy and human capital inequality: A matter of life and death |
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| Institution: | 1. The Robert Day School of Economics and Finance, Claremont McKenna College, 500 E. Ninth Street, Claremont, CA 91711, USA;2. Department of Economics, College of William and Mary, P.O. Box 8795, Williamsburg, VA 23187, USA;1. Department of Finance, Faculty of Business and Law, Deakin University, Australia;2. Department of Economics, Faculty of Business and Law, Deakin University, Australia;3. School of Labor and Human Resources, IMI, Renmin University of China, Beijing, China;4. College of Business, Chu Hai College of Higher Education, Hong Kong;3. Resources for the Future, USA;4. Beihang University, China;1. Department of Economics, University of Hagen, Universitätsstraße 41, 58097 Hagen, Germany;2. Department of Economics, University of Hamburg, Von-Melle-Park 5, 20146 Hamburg, Germany;1. IPAG Business School, Paris;2. Department of Spatial Economics, Vrije Universiteit Amsterdam, The Netherlands;3. Tinbergen Institute, The Netherlands;4. Department of Social Sciences, Wageningen University, The Netherlands |
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| Abstract: | This paper analyzes the economic implications of an environmental policy when we account for the life expectancy of heterogeneous agents. In a framework in which everyone suffers from pollution but health status also depends on individual human capital, we find that the economy may be stuck in a trap in which inequality rises steadily, especially when the initial pollution intensity of production is too high. We emphasize that such inequality is in the long run costly for the economy in terms of health and growth. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to address this situation. We show that a stricter environmental policy may allow the economy to escape from the inequality trap while enhancing the long-term growth rate when the initial inequality in human capital is not too large. |
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| Keywords: | Endogenous growth Environmental policy Human capital Inequality Longevity I14 O44 Q56 Q58 |
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