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Environmental policy and the economic downturn

By Alex Bowen and Nicholas Stern

Abstract

This paper considers how environmental policies should respond to macroeconomic downturns. It first explores the implications of the global economic downturn of 2008-09 for environmental policies, focusing in particular on the example of action against climate change. The arguments for and against activist fiscal policies in general are then reviewed, and the case made that a demand-induced downturn provides a very good opportunity to undertake a necessary step change in the public spending component of environmental policies and to start working through a backlog of public investment to improve the environment. Fiscal policy should be used to improve the allocation of resources across time and space. Recent fiscal stimuli are considered in the light of this discussion. It is also argued that there is little cause to delay the introduction of price signals to internalise environmental externalities. But the levels at which such signals should be set requires careful analysis; changes over the business cycle may be warranted, depending on the nature of the environmental externality and the cause(s) of the business cycle in question

Topics: GE Environmental Sciences, HC Economic History and Conditions
Publisher: Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment
Year: 2010
OAI identifier: oai:eprints.lse.ac.uk:37589
Provided by: LSE Research Online

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Citations

  1. (2002). Environmental taxation and regulation’ doi
  2. Growth Projections for 2010 (Real GDP %) doi
  3. (2007). Investment and financial flows to address climate change, United Nations Convention on Climate Change, doi
  4. (2006). The use of consumption taxes to re-launch green tax reforms’ doi

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