Working Paper BETA #2022-03

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Title : Reconsidering the interplay between endogenous growth and the Environmental Kuznets Curve

Author(s) : David DESMARCHELIER

Abstract : This paper develops a very simple model of endogenous growth à la Lucas (1988) in which a representative household has to choose between environmental preservation and human capital accumulation. After computing analytically all possible trajectories, we point out that one of them depicts an inverted U-shape relationship between human capital (production) and pollution (i.e. an Environmental Kuznets Curve). If the economy follows the EKC trajectory, then a steady state is reached in the long run, indicating the incompatibility between endogenous growth and the EKC. Moreover, this simple framework allows to compute explicitly the initial value of the control variable. It is then proved that the optimal trajectory is the balanced growth path, not the EKC. Finally, we show that endogenous growth is possible, whatever the effect of pollution on the marginal utility of consumption.

Key-words : Endogenous growth, environmental Kuznets curve, human capital

JEL Classification : C61, O44