Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 601: Atmospheric Pollution in Rapidly Growing Urban Centers: Spatial Policies and Land Use Patterns

Efthymia Kyriakopoulou () and Anastasios Xepapadeas ()
Additional contact information
Efthymia Kyriakopoulou: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 Gothenburg, Sweden
Anastasios Xepapadeas: Department of International and European Economic Studies, Athens University of Economics and Business and Beijer Fellow

Abstract: We study the optimal and equilibrium distribution of industrial and residential land in a given region. The trade-off between the agglomeration and dispersion forces, in the form of pollution from stationary forces, production externalities, and commuting costs, determines the emergence of industrial and residential clusters across space. In this context, we define two kinds of spatial policies that can be used in order to close the gap between optimal and market allocations. More specifically, we show that the joint implementation of a site-specific environmental tax and a site-specific labor subsidy can reproduce the optimum as an equilibrium outcome. The methodological approach followed in this paper allows for endogenous determination of land use patterns and is shown to provide more precise results compared to previous studies.

Keywords: spatial policies; agglomeration; land use; atmospheric pollution; environmental tax; labor subsidy

JEL-codes: H23; R14; R38

42 pages, August 12, 2014

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