Abstract

This paper investigates environmental regulations in an endogenous growth model that features two engines of growth -- perpetual capital and innovation growth. We provide a theoretical (both analytical and numerical) analysis to sharpen the empirical observations on the distinctive responses of innovation and capital accumulation to environmental policy stringency. Analytically, we show that environmental regulations (pollution taxes) can result in an increase in innovation growth and a decrease in capital growth, provided that dirty inputs and capital are sufficiently complementary. The contrasting responses of the two growth engines lead to an inverted-U relationship between the overall GDP growth and environmental taxation. Thus, there exists a double-dividend in terms of not only improving the environment (the environmental green dividend) but also increasing economic growth and social welfare (the non-environmental blue dividend). Numerically, we show that an environmental regulation is more likely to obtain the non-environmental blue dividend in growth and welfare, if (i) the innovation sector, relative to the capital sector, is more productive, (ii) capital and polluting inputs are less complementary, or (iii) the goods market is more competitive.

About the Speaker

Dr. Yang is Assistant Professor of Economics at University of Macau. Before joining UM, he worked at University of Nottingham Ningbo China and University of Sydney, and from the latter he earned postgraduate degrees. His current research focuses on economic growth, innovation, intellectual property rights, monetary economics, and fiscal policy. His research has been published in international journals such as European Economic Review, Review of Economic Dynamics, Economics Letters, International Review of Economics and Finance, Macroeconomic Dynamics, Mathematical Social Sciences, and Review of Development Economics.