No abstract

To examíne the question whether sustained growth and environmental quality are compatible, a macroeconomic model is developed where the environment is essential for production and welfare and where the growth rate is an endogenously detemvned variable. Pollution is an inevitable side-product of economic activity. It can be reduced by spending a fraction of total output on abatement activities. It is examined first under what conditions sustainable growth is feasible and when this is optimal. The influence of increased environmental care on the growth rate is traced. Increased environmental care affects long-term output growth through three channels: crowding out of investment, pruductivity improvements, and intertemporal substitution of consumption. Externalities arise because the economy-wide leve! of pollution affects negatively the productivity of produccion factors and welfaze.' We are indebted to Athur van Scest for helpful comments on Appendiz A, and to L. Bovenberg, Th. van de Klundert and two anonymous referees for useful comments on an earlier draft. The views expressed in this paper are our own and do not necessazily retlect those of the Ministry of Finance." Correspondence to: 1. Smulders,

No abstract

No abstract