TRANSITIONAL IMPACTS OF ENVIRONMENTAL-POLICY IN AN ENDOGENOUS GROWTH-MODEL

To explore the link between a tighter environmental policy and economi c growth, we employ an endogenous growth model with endogenous technol ogical progress in abatement technologies. The environment, which is m odelled as a renewable resource, acts both as a public consumption goo d and as a public input into production. The entire transition towards a new balanced-growth path after a tightening of environmental policy is computed analytically. We find sharp contrasts between short-run a nd long-run effects. Whereas the level and the growth rate of output m ay decline in the short run, income growth may improve in the long run .