Premium
THE POLITICAL ECONOMY OF ENVIRONMENTAL POLICY WITH OVERLAPPING GENERATIONS
Author(s) -
Karp Larry,
Rezai Armon
Publication year - 2014
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12068
Subject(s) - overlapping generations model , economics , stock (firearms) , politics , asset (computer security) , pareto optimal , environmental policy , tax reform , pareto principle , labour economics , macroeconomics , public economics , natural resource economics , political science , multi objective optimization , law , mechanical engineering , operations management , computer security , machine learning , computer science , engineering
A two‐sector overlapping generations model illuminates the intergenerational effects of a tax that protects an environmental stock. A traded asset capitalizes the economic returns to future tax‐induced environmental improvements, benefiting the current asset owners, the old generation. Absent a transfer, the tax harms the young generation by decreasing their real wage. Future generations benefit from the tax‐induced improvement in environmental stock. The principal intergenerational conflict arising from the tax is between generations alive at the time society imposes the policy, not between generations alive at different times. A Pareto‐improving tax can be implemented under various political economy settings.