Environmental Policy and Economic Growth in a Simple Endogenous Model

Abstract

This paper analyzes the economic growth with the environmental asset, and explores the optimal environmental policy instruments in a simple endogenous growth model. It also gives a comparison analysis of different environmental policies. It concludes that environmental quality does affect the growth rates in the ways that depend upon how the environmental quality contributes to the economic system. Appropriate choices of environmental policy contribute to moving the market equilibrium growth to the Pareto optimum. In steady-state growths, technical standard remains constant while the effluent tax is increasing with the growth of capital accumulation, which has implications on policy implementation.