Endogenous Fiscal Policies, Environmental Quality, and Status-Seeking Behavior Phu Nguyen-Van; Thi Kim Cuong Pham

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Phu Nguyen-Van ; Thi Kim Cuong Pham
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Ecological Economics
Environmental quality -- Analysis; Economic growth -- Environmental aspects; Environmental quality -- Environmental aspects
To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.ecolecon.2012.10.021 Byline: Phu Nguyen-Van, Thi Kim Cuong Pham Keywords: Endogenous policy; Endogenous growth; Environmental quality; Status-seeking; Public expenditure; Wagner's law Abstract: This paper analyzes endogenous fiscal policy in an endogenous growth model where agents care about social status and environmental quality. The quest for a higher status is assimilated to a preference for capital wealth. The government uses income tax to finance infrastructure and environmental protection. We find that accounting for preferences for social status and environmental quality may lead to an allocation of tax revenue in favor of a cleanup effort to the detriment of infrastructure. Economic growth is not necessarily and negatively affected by this allocation as it is partly explained by an excessive accumulation of capital wealth due to the quest of status. Status seeking can however harm economic growth and environmental quality when its motive is important enough. Finally, we show that economic growth may be consistent with environmental preservation but is not necessarily welfare-improving as in the case of absence of status-seeking behavior. Article History: Received 7 October 2011; Revised 12 October 2012; Accepted 23 October 2012 Article Note: (footnote) [star] Helpful comments from an editor and anonymous referees of this journal are gratefully acknowledged. We are also thankful to Rodolphe Dos Santos Ferreira, Frederic Dufourt, Michael Rauscher, and participants of several seminars for their useful comments and discussions. All errors are ours.
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