The natalist bias of pollution control

For a given technology, two ways are available to achieve low polluting emissions: reducing production per capita or reducing population size. This paper insists on the tension between the former and the latter. Controlling pollution either through Pigovian taxes or through tradable quotas schemes encourages agents to shift away from production to tax free activities such as procreation and leisure. This natalist bias will deteriorate the environment further, entailing the need to impose ever more stringent pollution rights per person. However, this will in turn gradually impoverish the successive generations: population will tend to increase further and production per capita to decrease as the generations pass. One possible solution consists in capping population too.

► We provide one of the first models where fertility, output and pollution are all endogenous.
► It allows to study endogenous responses of population to environmental policy.
► Taxing output to control pollution may delay the demographic transition and worsen the welfare of future generations.