CAN ABATEMENT OVERCOME THE CONFLICT BETWEEN ENVIRONMENT AND ECONOMIC-GROWTH

This paper reexamines the link between pollution, abatement policies and economic growth. We develop a Lucas variety of endogenous growth model to formalize the effects of pollution and abatement on growth. Pollution is linked to the scale of production; it has a negative impact on productivity both in directly productive activities and in the learning process. This effect may be mitigated by abatement activities the efficiency of which can be enhanced by investing in abatement technology. We show that less (effective) pollution is associated with higher growth in the steadystate. Also the short term effects are examined, and finally, we discuss the optimal government policies with respect to abatement and taxation.