Optimal Environmental Policy under Endogenous Terms of Trade and Economic Growth

Abstract

The aim of this work is to depict the main characteristics of the optimal environmental policy under endogenous terms of trade and economic growth. Here, endogenous terms of trade are inferred from the price of an aggregate consumption good. Our results show that when emissions of a global pollutant affect the environment and, therefore, the utility of the economic agents, the optimal policy consists in a pollution tax on production.