Makridis, C., "Structural Environmental Change"

Title: "Structural Environmental Change" (joint work with Shengyu Li, Tilburg University)

Speaker: Associate Research Professor Christos Makridis, Arizona State University & University of Nicosia

Host: Assistant Professor Kospentaris Ioannis, Department of Economics, Athens University of Economics and Business

Time: 15.30 -17.00

Room: 76, Patission Str., Antoniadou Wing, 3rd floor, Room A36

Abstract: This paper builds and estimates a general equilibrium model with pollution externalities that enter household preferences to jointly explain income and price effects for the United States experience of structural change. First, we document three empirical regularities across countries: (a) a decline in energy and emissions intensity, (b) a negative correlation between a reallocation to services and pollution, and (c) a positive correlation between improvements in air quality and per capita GDP. Second, we build a stylized static multi-sector model featuring preferences over air quality. The presence of non-separable preferences between pollution and consumption plays a key role in the income effect. Since pollution causes larger damages on service consumption, a rise in air quality will accelerate the reallocation to services. Furthermore, we mathematically decompose price and wealth effects and provide bounds. Third, we augment the model with capital and estimate it using simulated method of moments, using the model to assess the costs and benefits of environmental taxes.