Abstract This paper studies the dynamic relationship between economic growth, pollution, and government intervention. To do so, we develop a model that links pollution to the economy’s productive capacity, thereby capturing the feedback loops between economic activity, environmental degradation, and fiscal policy intervention. The model incorporates a pollution-sensitive damage function, taxes, and government spending while analyzing economic growth under different levels of government intervention. Therefore, the main paper’s contributions reveal that economies can achieve favorable outcomes with low or moderate government intervention, and that our results underscore the vital role of pollution mitigation policy in dynamically balancing economic growth with environmental sustainability.
Grassetti et al. (Wed,) studied this question.