Environmental investment and policy with distortionary taxes, and endogenous growth

Don Fullerton, Seung Rae Kim

Research output: Contribution to journalArticlepeer-review


Recent studies consider public R&D spending that affects abatement knowledge and endogenous growth, distortionary taxes that affect capital formation, pollution taxes that affect environmental degradation, and regeneration that restores natural capital. Our model combines all those elements. The combination affects prior results, focusing on two parameters: the need for distorting taxes, and productivity of abatement knowledge relative to pollution. First, these two extensions can reverse prior findings that pollution tax revenue is always enough to pay for public R&D. Second, tax distortions and externalities alter prior findings that the ratio of public to private capital depends only on output elasticities. Third, dynamics affect prior static findings about other public spending "crowding out" environmental public goods. Fourth, a greater need for public spending can lead to greater increases in distorting taxes or pollution taxes. Fifth, greater environmental regulation can mean growth is higher or lower, even if welfare is higher.

Original languageEnglish (US)
Pages (from-to)141-154
Number of pages14
JournalJournal of Environmental Economics and Management
Issue number2
StatePublished - Sep 2008


  • Abatement knowledge
  • Environmental policy
  • Growth rate
  • Income tax
  • Pollution tax

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law


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