Pollution, children's health and the evolution of human capital inequality

Abstract

This article examines how pollution and its health effects during childhood can affect the dynamics of inequalities among households. In a model in which children's health is endogenously determined by pollution and the health investments of parents, we show that the economy may exhibit inequality in the long run and be stuck in an inequality trap with steadily increasing disparities, because of pollution. We investigate if an environmental policy, consisting in taxing the polluting production to fund pollution abatement, can address this issue. We find that it can decrease inequality in the long run and enable to escape from the trap if the emission intensity is not too high and if disparities are not too wide. Otherwise, we reveal that a policy mix with an additional subsidy to health expenditure may be a better option, at least if parental investment on children's health is sufficiently efficient.