(), Philippe Aghion
(), Leonardo Bursztyn
() and David Hemous
Daron Acemoglu: Massachusetts Institute of Technology
Philippe Aghion: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Leonardo Bursztyn: Harvard
David Hemous: Harvard
Abstract: This paper introduces endogenous and directed technical change in a growth model with environmental constraints. A unique final good is produced by combining inputs from two sectors. One of these sectors uses “dirty” machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both “carbon taxes” and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth.
54 pages, April 25, 2010
Full text files
Questions (including download problems) about the papers in this series should be directed to Hanna Christiansson ()
Report other problems with accessing this service to Sune Karlsson ().
This page generated on 2018-01-23 23:34:01.