SCALE EFFECT VERSUS INDUCED POLICY RESPONSE IN THE ENVIRONMENTAL KUZNETS CURVE: THE CASE OF U.S. WATER POLLUTION

Authors

  • CHING-YAO IRENE LAI,

    1. Lai: Associate Professor, Department of Accounting Information, Chihlee Institute of Technology, New Taipei City, Taiwan, ROC. Phone 886-2-22576167, Fax 886-2-22536967, E-mail irenelai@alumni.nccu.edu.tw
    Search for more papers by this author
  • C.C. YANG

    1. Yang: Distinguished Research Fellow, Institute of Economics, Academia Sinica, Taipei, Taiwan, ROC. Phone 886-2-27822791, Fax 886-2-2785-3946, E-mail ccyang@econ.sinica.edu.tw; Department of Public Finance, National Chengchi University, Taipei, Taiwan, ROC; and Department of Public Finance, Feng Chia University, Taichung, Taiwan, ROC
    Search for more papers by this author
    • We would like to thank three anonymous referees for their comments and suggestions that led to significant improvement of the paper.


Abstract

The environmental Kuznets curve (EKC) could arise from the scale effect in abatement technology as emphasized by Andreoni and Levinson (2001) or from the induced policy response as suggested by Grossman and Krueger (1995). This paper incorporates these two contrary views into a model and quantitatively evaluates their relative importance in shaping the EKC of U.S. water pollution. Our main findings include: (a) some scale effect in abatement technology must exist, otherwise the turning point of the EKC will be unreasonably high; (b) the scale effect alone is not sufficient to explain the practical occurrence of the turning point of the EKC; and (c) the scale effect features critically in the induced policy response as well. (JEL H41, O40, Q20)

Ancillary