IDEP Conferences, 11th journées Louis-André Gérard-Varet

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The environmental Kuznets curve and equilibrium indeterminacy
Rafaela M. Perez, Esther Fernández, Jesús Ruiz

Last modified: 2012-05-11

Abstract


In this paper we illustrate that the existence of the Environmental Kuznets Curve (EKC) could be the result of indeterminacy of equilibria. In a simple neoclassical growth model with a single environmental externality in the utility function of households and public abatement, we characterize the condition on parameter values that leads to local indeterminacy of equilibria, in which preferences and pollution technology parameters are involved. We have used data from economies that display the EKC to estimate the crucial parameters of the model, and the results suggest that they satisfy the theoretical indeterminacy condition. We find that the presence of abatement activities is not a necessary condition for indeterminacy equilibria to arise and hence, an EKC; on the contrary, non-separability of consumption and pollution in the utility function is crucial.

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