Ugo Bolletta: ugo.bolletta2[at]unibo.it
Mathieu Faure: mathieu.faure[at]univ-amu.fr
This article uses a vintage capital theoretical framework to investigate how technological innovations and remanufacturing can affect national and green accounting differently, and how green (Pigouvian) taxes can promote remanufacturing and improve social welfare, in agreement with circular economy and sustainability principles. Technological innovations embodied in new capital vintages lead to increases in productivity but also to natural resources extraction and waste when capital of new vintages is produced and capital of older vintages is discarded. Remanufacturing can reduce social costs of innovations by allowing embodiment to happen with less resources extraction and waste, but it can increase private costs of production and decrease productivity, so the trade-offs between social and private costs need to be evaluated. National accounting measurements of economic output do not fully consider social costs, while green accounting measurements, when correctly defined, are more representative of social welfare. Modeling the phenomenon is important because it allows for better understanding of the effects of remanufacturing on economic output and social welfare, and because it offers conceptual guidelines for the development of systems of green accounting and for the design of green taxes.