On Income Inequality and Green Preferences

We derive conditions on individual preferences and technology that give rise to a negative correlation between income inequality and environmental protection. We present a class of models (which captures a static model as well as an overlapping-generations model) in which individuals differ in earning abilities, and where a majority elected representative takes decisions over a pollution tax and a redistributive tax. We show that, if private consumption goods and the environment are non-inferior goods, then if the decisive individual has lower ability than the average, she will prefer a higher redistributive tax and a lower pollution tax.Environmental policy, redistribution, inequality, political economy

Inequality, Environmental Protection and Growth

We analyze how, in representative democracies, income distribution influences the stringency of environmental policy and economic growth. Individuals (who differ in abilities) live for two periods, working when young and owning capital when old. Externalities are caused by a polluting factor. The revenue from pollution taxation, as well as capital-income taxation, is redistributed lump-sum to the old. The fiscal decision, at each point in time, is taken by a majority elected representative. In politico-economic equilibrium, more inequality (in terms of the skewness of the distribution) yields a lower pollution tax, a larger capital tax, and lower growth.Environmental policy, redistribution, inequality, political economy, growth.

Environmental Policy and Capital Movements: The Role of Government Commitment

This paper explores the relationship between environmental protection and international capital movements, when tax policy is endogenous (through voting). A two-period general equilibrium model of a small open economy is specified to compare the effects of two different constitutions (commitment or no commitment in tax policy), as well as income inequality. Under the commitment regime, the equilibrium is characterised by a lower labour tax, higher environmental tax and less capital moving abroad than in the no-commitment equilibrium. Furthermore, given the degree of commitment, more equal societies are characterised by tougher environmental policy and less capital moving abroad.Environmental policy, international capital movements, time consistency, inequality, political economy, human capital

Integrated aggregation in dynamic economies

The paper provides necessary and sufficient conditions for aggregation of heterogeneousindividuals in dynamic economies, when individuals differ in abilities as well as in capitalendowments, and when there are distortionary taxes. The aggregation theorems imply that thecompetitive equilibrium can be represented as if there was only one individual in theeconomy. This considerably facilitates analysis of the aggregate economy, such as stabilityanalysis, as well as of the distribution of wealth. Furthermore, the paper provides conditionsunder which a representative individual coincides with one of the individuals in the economy

Relative capital accumulation with heterogeneous individuals

The purpose of this paper is to show how differences in individuals’ labour productivitiescause differences in their accumulation of capital, and thereby analysing the evolution of theincome distribution. There are three cases of interest: (i) the high productive accumulaterelatively more capital [growing inequality], (ii) no individual accumulates relatively morecapital [neutrality], (iii) the low productive accumulate relatively more [diminishinginequality]. Which of these cases is generated depends on the price dynamics (the growth rateof wages and the level of the interest rate relative to the rate of time preference), togetherwith the preferences for consumption. The exact conditions for the price dynamics to generate(i), (ii) and (iii) are derived. Furthermore, since the price dynamics is endogenous in generalequilibrium, we find the conditions for preferences and technology that determine relativecapital accumulation. We find (in general equilibrium) that growing economies typically causethe high productive to accumulate more capital than the low productive if preferences areDecreasing Absolute Risk Aversion, and shrinking economies cause the less productive toaccumulate more (i.e. decumulate less). The relations are reversed for Constant and IncreasingRelative Risk Aversion. The final part of the paper analyses the effects of capital taxation onthe income distribution

Privately provided public goods in a dynamic economy

We show that when individuals can save (accumulate capital), they all eventually becomepublic-good contributors. In steady state, larger economies have more contributors. If thepublic good is normal, then its quantity increases in population size in the open-loopequilibrium, but not necessarily in the feedback equilibrium. If both private and public goodsare normal, then the open-loop equilibrium exhibits greater steady-state public provision thanthe feedback equilibrium. If private consumption is inferior the opposite is true. Interpretingindividuals as countries, our findings suggest that all countries over time will becomecontributors toward a global public good

Imperfect competition, labour market distortions, and the double dividend hypothesis: Theory and evidence from Italian data

The paper explores the hypothesis of a double dividend from environmental taxation i.e. whether shifting the burden of taxation away from labour toward the environment can boost employment and increase welfare. We present a general-equilibrium model where the economy is distorted by labour taxes, monopolistic product-market competition, and union-wage bargaining. We find that employment and welfare always increase when the revenue from the introduction of a Pigouvian tax (imposed on firms and households) is fully recycled to cut the rate of the pre-existing labour tax. Moreover, it turns out that the degree of the imperfections influences the magnitude of the effects of the reform. We also offer numerical results for the case in which the pollution tax is positive at the outset

Environmental Policy and Capital Movements: The Role of Government Commitment

This paper explores the relationship between environmental protection and international capital movements, when tax policy is endogenous (through voting). A two-period general equilibrium model of a small open economy is specified to compare the effects of two different constitutions (commitment or no commitment in tax policy), as well as income inequality. Under the commitment regime, the equilibrium is characterised by a lower labour tax, higher environmental tax and less capital moving abroad than in the no-commitment equilibrium. Furthermore, given the degree of commitment, more equal societies are characterised by tougher environmental policy and less capital moving abroad

Can subsidies rather than pollution taxes break the trade-off between economic output and environmental protection?

We build a general equilibrium dynamic model in which individual investors are endowed with “warm-glow” preferences a la Andreoni (1990) so that they feel partly responsible for the pollution content of their portfolio. Through investors’ portfolio choice, firms are induced to engage in costly abatement activities, given that higher pollution also implies a higher cost of capital. In this scenario, we characterize the equilibrium of the economy and investigate, through a fiscal reform analysis, the effects of such tax instruments on the equilibrium scale of the economy, per-capita consumption, pollution abatement and “pollution premium”. We show that an increase of the pollution tax, while reducing pollution, also depresses consumption, the scale of the economy and the pollution premium. On the contrary, an increase of subsidies on abatement activity increases the scale of the economy and can also decrease pollution and the pollution premium and increase per-capita consumption. All our results have relevant testable implications, which we leave for future empirical research