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Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences.

Turnovsky, S.J. and Monteiro, G. (2007) Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences. European Economic Review, 51 (2). pp. 479-504. ISSN 0014-2921

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Abstract

The effects of consumption and production externalities on economic performance under time non-separable preferences are examined both theoretically and numerically. We show that a consumption externality alone has long-run distortionary effects if and only if labor is supplied elastically. With fixed labor supply, it has only transitional distortionary effects. Production externalities always generate long-run distortions, irrespective of labor supply. The optimal tax structure to correct for the distortions is characterized. We compare the implications of this model with those obtained when the consumption externality is contemporaneous. While some of the long-run effects are robust, there are also important qualitative and quantitative differences, particularly along transitional paths.

Item Type: Article
Institution: The University of York
Depositing User: York RAE Import
Date Deposited: 29 May 2009 13:29
Last Modified: 29 May 2009 13:29
Published Version: http://dx.doi.org/10.1016/j.euroecorev.2005.12.001
Status: Published
Publisher: Elsevier Science B.V.
Identification Number: 10.1016/j.euroecorev.2005.12.001
URI: http://eprints.whiterose.ac.uk/id/eprint/6064

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