Time-separable Utility, Leisure and Human Capital Accumulation: What New Implications for the Environment-Growth Nexus?

by Xavier Pautrel

- Using a time-separable utility function where leisure is introduced through the disutility of working time and is adjusted for quality, as measured by human capital to capture home-production, we demonstrate that the environmental policy is harmful for growth. A tighter environmental tax reduces the incentives to educate by increasing leisure time and lowers the steady-state growth rate and lifetime welfare, whatever the source of pollution.

Pautrel, X. (2009). "Time-separable Utility, Leisure and Human Capital Accumulation: What New Implications for the Environment-Growth Nexus?" FEEM Working Papers No. 104.09, Nov 2009.