Does environmental policy necessarily discourage growth? (Q1762968)

The author discusses the long-run impact of an environmental policy on economic growth and examines whether the policy can positively influence economic growth. He modifies Aghion and Howitt's growth model because he can describe the situation where the more productive production factor earns greater payoffs from R\&D investment. The market structure of the intermediate sector is assumed to be imperfect competition. The profits of intermediate suppliers are spent on R\&D activities. The analysis shows that environmental taxation decreases the level of final production and the demand for intermediate goods; thus, it decreases the intermediate profits.