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- Title
Limit Cycles Under a Negative Effect of Pollution on Consumption Demand: The Role of an Environmental Kuznets Curve.
- Authors
Bosi, Stefano; Desmarchelier, David
- Abstract
Since Heal (Explorations in natural resource economics. The Johns Hopkins University Press for Resources for the Future, Baltimore, <xref>1982</xref>), there is a theoretical consensus about the occurrence of limit cycles (through a Hopf bifurcation) under a positive effect of pollution on consumption demand (<italic>compensation effect</italic>) and about the impossibility under a negative effect (<italic>distaste effect</italic>). However, recent empirical evidence advocates for the relevance of <italic>distaste effects</italic>. Our paper challenges the conventional view on the theoretical ground and reconciles theory and evidence. The environmental Kuznets curve (EKC) (pollution first increases in the capital level then decreases) plays the main role. Indeed, the standard case à la Heal (limit cycles only under a <italic>compensation effect</italic>) only works along the upward-sloping branch of the curve while the opposite (limit cycles only under a <italic>distaste effect</italic>) holds along the downward-sloping branch. Welfare effects of taxation also change according to the slope of the EKC.
- Subjects
LIMIT cycles; KUZNETS curve; POLLUTION &; economics; EMISSIONS trading; ECONOMIC consumption &; the environment
- Publication
Environmental & Resource Economics, 2018, Vol 69, Issue 2, p343
- ISSN
0924-6460
- Publication type
Article
- DOI
10.1007/s10640-016-0082-7