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Aleksandar Vasilev
''What is environmental sustainability? Optimal environmental policy as a targeting regime''
( 2022, Vol. 42 No.3 )
We define and model environmental sustainability within a General-Equilibrium framework. The focus in on "environmental fiscal policy" that pursues environmental sustainability, and the optimal sustainability strategy. We compare and contrast the exogenous fiscal-policy case with the optimal (Ramsey) fiscal policy cases. We find that: (i) returning to 100 percent clean environment is not optimal, and thus not a good target, and (ii) optimal environmental policy constitutes trying to manage environmental quality within pre-specified bands, and is thus akin to inflation targeting in the monetary economics literature; we call this environmental quality targeting, which is a novel quantitative criterion to measure environmental sustainability in a dynamic context. This is the first place such an analogy has been established, and where the contribution of this note lies.
Keywords: environmental sustainability, pollution, environmental quality, environmental tax, abatement spending, optimal (Ramsey) environmental fiscal policy, environmental-quality-targeting
JEL: E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Q5 - Environmental Economics: General
Manuscript Received : Jan 02 2022 Manuscript Accepted : Sep 30 2022

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