Environmental Policy, Education and Growth: A Reappraisal When Lifetime Is Finite

Abstract

This article demonstrates that when finite lifetime is introduced in a Lucas (1988) growth model where the source of pollution is physical capital, the environmental policy may enhance the growth rate of a market economy, while pollution does not influence educational activities, labor supply is not elastic and human capital does not enter the utility function. The result arises from the "generational turnover effect" due to finite lifetime. It remains valid under conditions when the education sector uses final output besides time to accumulate human capital. Nevertheless, it does no longer hold when the source of pollution is output.Furthermore, this article demonstrates that ageing reduces the positive influence of the environmental policy when growth is driven by human capital accumulation à la Lucas (1988) and lifetime is finite. It also confirms for finite lifetime the result found by Vellinga (1999) with a single representative agent: environmental care does not influence optimal growth when utility is additive and pollution does not influence the ability of agents to be educated.

Environmental policy and social status preference for education in an Uzawa–Lucas model

“…This growth can be sustainable because the price of pollution permits evolves at the same growth rate as the stock of physical capital. This result holds on previous studies (e.g., Hettich, 1998; Pautrel, 2008, 2009, 2012), following the pollution function considered by Gradus and Smulders (1993). Defining φ as the pollution elasticities of capital, previous studies are derived equation (6) as follows: …”

“…To this research question, Hettich (1998) and Pautrel (2008, 2012) answer yes because they found that an increase in the environmental tax rate reduced pollution and a rise in economic growth rate, analysing the Uzawa‐Lucas model. Endogenous labour supply considered by Hettich (1998) and infinity of household lifespan considered by Pautrel (2008, 2012) have essential roles on the growth‐enhancing effect of environmental policy. Especially, the former study implies an importance of household's preference on growth‐enhancing effect of environmental policy.…”

“…The main contribution of our study is to its revelation that social status preference for education has an essential role on the growth‐enhancing effect of environmental policy. Although previous studies about growth‐enhancing effect using the Uzawa‐Lucas model focused on endogenous labour supply (Hettich, 1998) and infinity of a household's lifespan (Pautrel, 2008, 2012), these studies failed to note the importance of social status preference. The assumption of social status preference is more important than other assumptions because the growth effect of environmental policy may depend on the assumption of social status preference as well as choice of a status good.…”

Can Education Be Good for Both Growth and the Environment?

“…The impact of environmental awareness on growth differs from the one generally detected in the literature. Gradus and Smulders (1993), Vellinga (1999), and Pautrel (2011) have shown that the long-run growth rate is independent of the degree of environmental concern. In their setting, the negative impact of greener preferences on physical capital accumulation (the polluting input) is exactly offset by the greater incentive to accumulate human capital (the clean input).…”

“…Vellinga (1999) gets the same result with a model extended by a stock of pollutant and with separability in utility between consumption and the environment. Within an overlapping-generations modelà la Blanchard (1985), Pautrel (2011) asks whether environmental policy may have a positive impact on long-term growth. In his setting the growth rate of the economy depends on the environmental tax.…”