The Effects of Environmental Policy on Endogenous Growth and Social Welfare

Abstract

This paper explores the effects of stricter domestic environ mental policy on economic growth rate and social welfare by incorporating environmental pollution and expenditure for pollution abatement and control into an endogenous growth model (Barro 1990) that emphasises the role of government spending as the engine of economic growth. The analysis shows that on a balanced growth path, the general negative growth effect of the more stringent environmental policy does not hold true for some specific cases. For some other cases, both economic growth rate and social welfare level are found to increase or decrease together as a result of the stricter environmental policy; and the possibility of a trade-off between economic growth and social welfare is also found.