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Macroeconomic policies, second-best theory and the environment

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  • Mäler, Karl-Göran
  • Munasinghe, Mohan

Abstract

This paper seeks to develop a basic analytical framework that can be used to trace the environmental impacts of macroeconomic policies, and especially to identify where unforeseen negative environmental effects may occur and design remedial measures. The framework is based on a formal mathematical model which shows the second-best nature of macroeconomic policies in the presence of environmental externalities. The model confirms the empirically observed and intuitively appealing conclusion that it is the combination of macroeconomic policies and subsidiary imperfections (policy, market or institutional), rather than macroeconomic policies alone, that leads to environmental degradation. Several illustrative examples are presented from case studies in selected developing countries.

Suggested Citation

  • Mäler, Karl-Göran & Munasinghe, Mohan, 1996. "Macroeconomic policies, second-best theory and the environment," Environment and Development Economics, Cambridge University Press, vol. 1(2), pages 149-163, May.
    • Handle: RePEc:cup:endeec:v:1:y:1996:i:02:p:149-163_00
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    Cited by:

    1. Islam, Sardar M. N. & Munasinghe, Mohan & Clarke, Matthew, 2003. "Making long-term economic growth more sustainable: evaluating the costs and benefits," Ecological Economics, Elsevier, vol. 47(2-3), pages 149-166, December.
    2. Raúl O'Ryan & Sebastian Miller & Carlos J. de Miguel, 2001. "Environmental Taxes, Inefficient Subsidies and Income Distribution in Chile: A CGE framework," Documentos de Trabajo 98, Centro de Economía Aplicada, Universidad de Chile.
    3. Munasinghe, Mohan, 1999. "Is environmental degradation an inevitable consequence of economic growth: tunneling through the environmental Kuznets curve," Ecological Economics, Elsevier, vol. 29(1), pages 89-109, April.
    4. Barrett, Christopher B., 1998. "Markets, Social Norms, And Governments In The Service Of Environmentally Sustainable Economic Development," Economics Research Institute, ERI Study Papers 28352, Utah State University, Economics Department.
    5. Bowen, Alex & Stern, Nicholas, 2010. "Environmental policy and the economic downturn," LSE Research Online Documents on Economics 37589, London School of Economics and Political Science, LSE Library.
    6. Blackman, Allen & Nelson, Per-Kristian & Mathis, Mitchell, 2001. "The Greening of Development Economics: A Survey," RFF Working Paper Series dp-01-08, Resources for the Future.
    7. Shively, Gerald E., 1999. "Prices and Tree Planting on Hillside Farms in Palawan," World Development, Elsevier, vol. 27(6), pages 937-949, June.

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