Carbon pricing and endogenous human capital accumulation

Within an R&D-driven endogenous growth model, this paper studies the effects of carbon pricing on individuals' incentives for human capital accumulation, income inequality, and the per capita growth rate. The results show that a tighter carbon pricing policy in the form of an environmental tax results in an increase in individuals' human capital accumulation and income inequality both between unskilled and skilled workers and among skilled workers and spurs the per capita growth rate. A numerical simulation for the U.S. economy confirms the results and shows that the increase in income inequality is very modest compared to the large increase in the per capita output growth rate.