Discussion Paper No.1609

Abstract :
In our modern economy, we face serious environmental problems due to the pollution by the firms and households caused in the production and consumption process. The forest stock in many countries is functioning to purify. However, individuals usually do not cultivate since forest is public goods in nature. The forest stock is dying in many countries, and the world environment is rapidly deteriorating. The government must maintain the clean environment to attain the sustainable growth of the economy.
In this paper, we consider the economy in which one generation produces goods and pollution in the production process and the government plans to invest for cultivating the forest to preserve the environment for the next generation. We suppose that the government imposes taxes to finance the cultivating costs for environmental preservation.
We derive the optimal conditions for investment of capital and cultivating forests for future generation in the steady state economy. We analyze whether or not the government policy to invest for cultivation of forests, and financing by income tax and consumption tax, can attain the efficient state.
We conclude that in the case where the government uses consumption tax, the income level is lower than the level of income in the social optimal case.
The steady state pollution level in this case is lower than the social optimal one, so the forest stock level is also lower than optimal.

Keywords : Forest Preservation Tax、Optimal Sustainable Growth of Forest