The link between economic growth and environmental quality: What is role of demographic change?

Internationally, political and academic discourse is increasingly focussed on two intensifying trends: the underprovision of environmental quality and population ageing. However, the potential interrelationship between these two phenomena has been virtually completely ignored. Importantly, the social preference for environmental care is a critical factor explaining the Environmental Kuznets Curve (EKC), the purported inverted U-curve relationship between environmental degradation and Gross Domestic Product. However, little is known about the potential impact of population ageing on the social preference for environmental protection. This is alarming as micro based surveys reveal that demographic factors may indeed affect social preferences for environmental quality (Hersch and Viscusi, 2005). This study explores if and how population ageing contributes to an explanation of the EKC via willingness to pay. The main results can be summarised as follows. In three EKC specifications for air pollutants, we find that the estimated coefficients for population ageing are positive and statistically different from zero, indicating that population ageing may increase pollution emissions. Using Baldwin's (1995) decomposition of actual pollution emissions, we propose alternative explanations for this result. In particular, population ageing may negatively impact abatement expenditure either through individual preferences or a tighter government budget constraint which channels expenditure away from the environmental protection.