Intergenerational Fairness and Sustainability

​Environmental economists argue that improved environmental quality has the features of a public good. Present generations cannot provide an improvement of environmental quality for their offspring by acting individually. Without cooperation, future generations are likely to be wealthier in terms of physical capital endowment, but poorer in terms of environmental quality.

Voluntary investments by present generations in a sustainable economy are therefore expected to be low unless a high degree of intergenerational altruism prevails. The missing intergenerational fairness could be incentivised by a tax on resources combined with a redistribution of tax income to finance the pension system. To be more precise, a tax on resources makes the use of raw material and energy more expensive and hence recycling and resource-saving innovations more profitable. The tax income could be used to finance the pension system. This would reduce the financial burden on the working generation and therefore increase their disposable income.