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Environmental quality along the process of economic growth: a theoretical reappraisal

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This paper studies the dual interaction between economic growth and environmental quality in an endogenous growth model. We exhibit multiple equilibria and complex local and global dynamics, resulting in potential indeterminacy, hysteresis effects, or long-lasting growth and environmental cycles. From a policy perspective, we reveal that changes in the environmental policy should be handled with care, as they may generate aggregate instability or condemn the economy to an environmental poverty trap associated with a possible irreversibility of environmental degradation. Lastly, our analysis provides a reassessment of pollution taxes, which are found to improve long-run economic growth when the model is well-determined, but reduce it in the presence of indeterminacy.

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Authors and Affiliations

  1. IPAG Business School, Paris, France

    Maxime Menuet

  2. GREDEG, CNRS, University Côte d’Azur Sophia Antipolis, Nice, France

    Maxime Menuet

  3. LEO-UCA, University Clermont Auvergne and University of Orléans, Clermont-Ferrand, France

    Alexandru Minea

  4. Research Institute of the University of Bucharest, University of Bucharest, Bucharest, Romania

    Alexandru Minea

  5. Department of Economics, Carleton University, Ottawa, Canada

    Alexandru Minea

  6. LEO, University of Orléans, Orléans, France

    Patrick Villieu

  7. Athens University of Economics and Business, Athens, Greece

    Anastasios Xepapadeas

  8. Department of Economics, University of Bologna, Bologna, Italy

    Anastasios Xepapadeas

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  1. Maxime Menuet
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  2. Alexandru Minea
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  4. Anastasios Xepapadeas
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Correspondence to Alexandru Minea.

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Menuet, M., Minea, A., Villieu, P. et al. Environmental quality along the process of economic growth: a theoretical reappraisal. Econ Theory 77, 1219–1258 (2024). https://doi.org/10.1007/s00199-023-01520-1

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