Anticipated environmental policy and transitional dynamics in an endogenous growth model

This paper makes a new attempt to investigate how an anticipated environmental policy governs the transitional dynamics of an economy when pollution externality is taken into account. The modeling strategy we use is an AK technology endogenous growth framework with an endogenous leisure-labor choice. It is found that, unlike inelastic labor supply framework, a rise in public abatement expenditure will stimulate the balanced economic growth rate. It is also found that public abatement technology plays an important role in determining the transitional adjustment of the economic growth rate in response to a pre-announced environmental policy.