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Is the Discount Rate Relevant in Explaining the Environmental Kuznets Curve?

  • Economics


In this paper we use Pindyck’s model (2002) to show that the discount rate may play an important role in explaining for the income-pollution pattern observed in the real world. Low levels of income involve high values of discount rate, that are obstacles to the adoption of a pollution abatement policy. Only when the discount rate falls, as a consequence of growth, will it be possible to implement measures for emissions reduction. Thus we are able to derive an inverse U-shaped income-pollution pattern, making use of an argument that has never yet been introduced in the economic debate on this issue.

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