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Abstract

Recent empirical work suggests an inverted U-shaped relationship between pollution and national income (the environmental Kuznet's curve). This work has typically ignored the fact that pollutants are dispersed to varying degrees. This study shows how varying levels of spatial pollution dispersion (or "publicness") can affect pollution-income relationships. A public goods model captures the idea of the "global commons" with two pollutants. The model suggests that no refutable hypotheses are possible without restrictions on income and substitution effects. With such restrictions, emission levels are lower for countries that have high pollution spillovers and larger proportions of pollution emitted within their borders. The model motivates the use of a switching regression approach to estimate the relationship between pollution emissions and national income for a set of countries. The empirical analysis incorporates two key pollution dispersion variables: transboundary pollution spillovers and the portion of pollution remaining in the country of origin. The pollution dispersion variables have a detectable effect on national pollution emissions although not necessarily those that them model predicts.

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