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In 1974, it was a live question whether the exhaustion of natural resources, such as oil, would necessarily lead to the decline of economic activity. Solow showed that constant levels of consumption could be sustained if there is sufficient substitutability between produced and natural factors of production. Hartwick then proved that underpinning this result is a saving rule—set investment in produced capital equal to the value of resource depletion at each point in time. A large literature has shown that a comprehensive measure of the change in real wealth—net saving—plays a central role in determining whether current well-being can be sustained. The current composition of wealth serves to define the policy challenges that countries face in achieving sustainable development. If substitution possibilities are limited between natural and other factors of production, as one might expect, then technical progress is a necessary complement to policies for sustainability.

We set out and solve a static neoclassical model with a labor/leisure choice for agents and a government sector producing a Samuelsonian public good. Numerical solutions vary considerably with the elasticity of substitution for commodities in an agent's utility function. We focus on solutions with an income tax rate set by the government (second best solutions). Govern- ment revenue varies with the rate of income tax (expressed in a Laffer Curve) and we observe that such curves generally peak "internally" only for case of "high" elasticity values in the utility function of a representative agent. Inelastic substitution possibilities involve the peaking of the Laffer Curve at a corner with the rate of income tax tending to unity. We report on welfare analysis for small changes in the rate of income tax and on first best outcomes (agents charged Samuelson "prices" for the public good).