Growth with Deadly Spillovers

Pollution causes premature deaths but plays almost no role in macroeconomic analysis. To fill this gap, we build a tractable model of innovation-led economic growth and endogenous fertility in which production generates deadly spillovers, that is, emissions that increase mortality. Such spillovers affect income growth, population size, and welfare. They also create steady states that would not exist otherwise. Emission taxes increase population size and may even raise long-run growth if they reduce mortality. Subsidies to primary production have opposite effects and may push resource-rich economies toward economic and demographic implosion. Cross-country regressions support hypotheses and predictions of the model.

Duke Scholars

Author Pietro F. Peretto Economics