Pollution, Public Health Care, and Life Expectancy when Inequality Matters

Andreas Schaefer, Alexia Prszkawetz

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

We analyze the link between economic inequality in terms of wealth, life expectancy,
health care and pollution. The distribution of wealth is decisive for the
number of households investing in human capital. Moreover, the willingness to
invest in human capital depends on agents’ life expectancy which determines the
length of the amortization period of human capital investments. Life expectancy
is positively affected by public health care expenditures but adversely affected by
the pollution stock generated by aggregate production. Our model accounts for an
endogenous take-off in terms of human capital investments. Higher initial inequality delays the take-off because a given set of policies (abatement measures and public health care) is less effective in improving agents’ survival probabilities. We compare a change in taxes to a change in expenditure shares on health and abatement given different amounts of (initial) inequality. The advantage of the latter as compared to the former is the achieved increase in the tax base which induces more expenditures on health care and abatement measures, such that an even higher economic activity is compatible with a similar level of long-run pollution.
Original languageEnglish
Title of host publicationDynamic Optimization in Environmental Economics
EditorsE. Moser, W. Semmler, G. Tragler, V.M. Veliov
PublisherSpringer
Publication statusPublished - 2014

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