Demography and pollution

• General equilibrium model with endogenous fertility (elastic labor supply) and negative externalities of pollution on labor productivity.
• Short run: limit cycles and expectation-driven fluctuations under dominant income effects and small pollution elasticity of labor productivity.
• Long run: increasing consumption and decreasing pollution with the cost of rearing children under dominant income effects.

In this paper, we consider an OG model with endogenous fertility and pollution externalities. We assume that pollution lowers the productivity. In the long run, under dominant income (substitution) effects, a raise in the cost of rearing children, increases (decreases) consumption and decreases (increases) pollution. In the short run, under dominant income effects, a sufficiently low pollution elasticity of labor productivity promotes deterministic cycles through a Hopf bifurcation jointly with expectations-driven fluctuations.