The Cost of Pollution on Longevity, Welfare and Economic Stability

Abstract

This paper presents an overlapping generations model where pollution, private and public healths are all determinants of longevity. Public expenditure, nanced through labour taxation, provide both public health and abatement. We study the complementarity between the three components of longevity on welfare and economic stability. At the steady state, we show that an appropriate scal policy may enhance welfare. However, when pollution is heavily harmful for longevity, the economy might experience aggregate instability or endogenous cycles. Nonetheless, a scal policy, which raises the share of public spending devoted to health, may display stabilizing virtues and rule out cycles. This allows us to recommend the design of the public policy that may comply with the dynamic and welfare objectives. JEL classication : J10; O40; Q56; C62.