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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jeem.2008.02.001 Byline: Don Fullerton (a), Seung-Rae Kim (b) Keywords: Pollution tax; Environmental policy; Growth rate; Income tax; Abatement knowledge Abstract: Recent studies consider public R&D spending that affects abatement knowledge and endogenous growth, distortionary taxes that affect capital formation, pollution taxes that affect environmental degradation, and regeneration that restores natural capital. Our model combines all those elements. The combination affects prior results, focusing on two parameters: the need for distorting taxes, and productivity of abatement knowledge relative to pollution. First, these two extensions can reverse prior findings that pollution tax revenue is always enough to pay for public R&D. Second, tax distortions and externalities alter prior findings that the ratio of public to private capital depends only on output elasticities. Third, dynamics affect prior static findings about other public spending 'crowding out' environmental public goods. Fourth, a greater need for public spending can lead to greater increases in distorting taxes or pollution taxes. Fifth, greater environmental regulation can mean growth is higher or lower, even if welfare is higher. Author Affiliation: (a) Department of Finance, University of Illinois at Urbana-Champaign, Champaign, IL 61820, USA (b) Korea Institute of Public Finance (KIPF), 79-6 Garak-Dong Songpa-Gu, Seoul 138-774, Republic of Korea Article History: Received 11 December 2006

The UN Framework Convention on Climate Change calls for the avoidance of 'dangerous anthropogenic interference with the climate system'. Among the many plausible choices, dangerous interference with the climate system may be interpreted as anthropogenic radiative forcing causing distinct and widespread climate change impacts such as a widespread demise of coral reefs or a disintegration of the West Antarctic ice sheet. The geological record and numerical models suggest that limiting global warming below critical temperature thresholds significantly reduces the likelihood of these eventualities. Here we analyze economically optimal policies that may ensure this risk-reduction. Reducing the risk of a widespread coral reef demise implies drastic reductions in greenhouse gas emissions within decades. Virtually unchecked greenhouse gas emissions to date (combined with the inertia of the coupled natural and human systems) may have already committed future societies to a widespread demise of coral reefs. Policies to reduce the risk of a West Antarctic ice sheet disintegration allow for a smoother decarbonization of the economy within a century and may well increase consumption in the long run.

Byline: Seung-Rae Kim (1) Keywords: optimal control; dynamic CGE models; uncertainty structure; short-term adjustment process; sector-specific political preferences; macroeconomic stabilization Abstract: This paper is a step toward the merger of optimal control models with dynamic computable general equilibrium (CGE) models. It demonstrates the usefulness of CGE techniques in control theory application and provides a practical guideline to policymakers in this relatively new field. Uncertainty, short-term quantity adjustment processes, and sector-specific political preferences are taken into account in exploring what time paths of adjustments of the economy would be optimal for a government with explicit policy goals. The experimental results highlight the importance of the structures of political preferences and uncertainty when performing optimal stabilization policy exercises. Author Affiliation: (1) Woodrow Wilson School, Princeton University, 409 Robertson Hall, Princeton, NJ, 08544-1013, U.S.A. E-mail Article History: Registration Date: 14/12/2004