Re-evaluating environmental tax: An intergenerational perspective on health, education and retirement

The impact of air pollution on individuals involves issues relating to medical care, education, pensions and retirement. As such, environmental policy can influence the intra- and intergenerational decision-making behaviour of individuals. In this paper, we re-evaluated environmental tax from an intergenerational perspective, using a three-period overlapping generation dynamic general equilibrium (OLG-DGE) model that incorporates health, education and retirement. Our paper highlights the importance of the interaction between economic growth, environmental pollution and intergenerational decision-making behaviour in three respects: (1) With increases to the environmental tax rate, the dynamic pattern of economic levels follows the ‘descending-ascending-descending’ trend. There is an optimal range of environmental tax rates in which double dividends are achieved, thus breaking the pollution-growth-pollution cycle. (2) An environmental tax changes the intra- and intergenerational optimal behaviour of individuals in terms of influencing health risks, retirements, education time and savings behaviour. It increases the efficiency of the intergenerational allocation of resources and, thus, improves the lifetime welfare of individuals. (3) In the face of technological progress, an environmental tax can amplify the expansionary effects of the economy, strengthen the pro-cyclicality of precautionary health investment and weaken the counter-cyclicality of education time.