Pollution in a globalized world: Are debt transfers among countries a solution?

Marion Davin (1) , Mouez Fodha (2, 3) , Thomas Seegmuller (4)

1 CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010
2 PSE - Paris School of Economics
3 PJSE - Paris Jourdan Sciences Economiques
4 AMSE - Aix-Marseille Sciences Economiques

This article analyzes the impacts of debt relief on production and pollution. We develop a two-country overlapping generations model with environmental externalities, public debts and perfect mobility of assets. Pollutant emissions arise from production, but agents may invest in pollution mitigation. Could debt relief be an efficient tool to encourage less developed countries to engage in the fight against climate change? We consider a decrease of the debt of the poor country balanced by an increase of the richer country's debt. We show that debt relief makes it possible to engage poor countries in the process of pollution abatement. Capital, environmental quality and welfare can increase in both countries. This result relies on the environmental sensitivity and the discount factor in the poor country relative to the rich one: the greater they are the more beneficial the debt relief is.

Mots clés: Capital market integration; Pollution; Abatement; Overlapping generations; Public debt; Capital market integra- tion

Domaines: Economies et finances

Marion Davin, Mouez Fodha, Thomas Seegmuller. Pollution in a globalized world: Are debt transfers among countries a solution?. 2019. ⟨halshs-02303265v2⟩