INEQUALITY, ENVIRONMENTAL PROTECTION, AND GROWTH

Laura Marsiliani
Thomas I. Renström

We analyze how, in representative democracies, income distribution influences the stringency of environmental policy and economic growth. Individuals (who differ in abilities) live for two periods, working when young and owning capital when old. Externalities are caused by a polluting factor. The revenue from pollution taxation, as well as capital-income taxation, is redistributed lump-sum to the old. The fiscal decision, at each point in time, is taken by a majority elected representative. In politico-economic equilibrium, more inequality (in terms of the skewness of the distribution) yields a lower pollution tax, a larger capital tax, and lower growth.

Keywords: Environmental policy, redistribution, inequality, political economy, growth.

JEL classification: D62, D72, H21, H23, O41.

Correspondence to:
L. Marsiliani, Department of Economics and Finance, University of Durham, 23-26 Old Elvet, Durham, DH1 3HY,
UK. Tel: +44-(0)191-334 6363. Fax: +44-(0)191-334 6341.
Email: [email protected] Web: http://www.dur.ac.uk/laura.marsiliani/

T.I. Renström, Department of Economics and Finance, University of Durham, 23-26 Old Elvet, Durham, DH1 3HY,
UK. Tel: +44-(0)191-334 6369. Fax: +44-(0)191-334 6341.
Email: [email protected] Web: http://www.dur.ac.uk/t.i.renstrom/

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