A demand-based mechanism driving the income-pollution relation

Laburpena

The purpose of this paper is twofold. First, we state the general conditions on preferences and pollution technology supporting a non-monotonic relationship be- tween income and environmental quality. In particular, the emergence of a non- monotonic relationship between income and pollution requires either the pollution technology or the preferences on consumption and environmental quality to be non-homothetic. In addition we show that a non-monotonic relationship between pollution and income may emerge quite easily with non-homothetic preferences. We complete our analysis by incorporating this demand-based mechanism into a dynamic general equilibrium model to study the dynamic evolution of the income- pollution relation along the development process.