Environmental Policy and Pollution Dynamics in an Economic Growth Model

The purpose of this paper is to study dynamic interactions among capital accumulation, environmental change and labor distribution. We try to synthesize the growth mechanism in the neoclassical growth theory and the environmental dynamics in traditional models of environmental economics within a comprehensive framework with an alternative approach to household behavior. We build a model which describes a dynamic interdependence among physical accumulation, environmental change and division of labor under perfect competition with environmental taxes on production, wealth income, wage income and consumption. We simulate the model to demonstrate existence of equilibrium points and motion of the dynamic system. The simulation demonstrates some dynamics which can be predicted neither by the neoclassical growth theory Solow model nor by the traditional economic models of environmental change.