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Are the Laffer curve and the green paradox mutually exclusive ?

Abstract : In this paper, we study the relationship between the Laffer curve and the green paradox in the context of a Ramsey model with endogenous labor supply in which pollution increases consumer demand (through a compensation effect). We find that—in the long run—the conditions under which a Laffer curve and a green paradox emerge are mutually exclusive. Indeed, the Laffer curve exists under a weak compensation effect, while the green paradox requires a strong effect. Also, we find that, in the short run, limit cycles may arise in the presence of a Laffer curve, while they never occur under a green paradox.
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Submitted on : Wednesday, March 28, 2018 - 11:06:45 AM
Last modification on : Saturday, February 26, 2022 - 3:18:49 AM

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Stefano Bosi, David Desmarchelier. Are the Laffer curve and the green paradox mutually exclusive ?. Journal of Public Economic Theory, Wiley, 2017, 19 (5), pp.937 - 956. ⟨10.1111/jpet.12242⟩. ⟨hal-01745432⟩

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