Technical Report Transition from a Linear Economy toward a Circular Economy in the Ramsey Model

Futagami, Koichi  ,  Akimoto, Kiyoka

18-09pp.1 - 33 , 2018-04 , Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
We construct a Ramsey-type model where households recycle waste generated by consumption and the non-recycled waste has negative externality. The aim of this paper is the following two points. Firstly, we examine a structural change process from “a linear economy”based on consumption-disposal toward “a sound material-cycle economy”or “a circular economy”based on consumption-recycling. Secondly, we examine dynamics of optimal consumption tax and recycling subsidy. Additionally, we discuss the Environmental Kuznets Curve (EKC). Previous theoretical literature explains the mechanism of the EKC through changes in production sectors such as an introduction of abatement technology or technological change. In contrast, this paper tries to explain the EKC through the aforementioned structural change process.

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