Sustainable growth and the environmental Kuznets curve

This paper develops an endogenous growth model with pollution and both human and physical capital. Human capital is produced cleanly and physical capital can be used for pollution control. Economic growth is sustainable. In the long run it is optimal for human capital to grow more rapidly than physical capital, output, and consumption, while pollution declines for realistic parameter values. Our results differ sharply from Stokey's result for an AK technology that sustained economic growth is not optimal. The model can generate an environmental Kuznets curve. A pollution tax or a voucher system can implement the Pareto efficiency solution.