Achieving Environmental Sustainability through Fiscal Policy
Edited by Larry Kreiser, Julsuchada Sirisom, Hope Ashiabor and Janet E. Milne
Chapter 4: Assessment of Fiscal Intervention Measures in China: Perspectives from Environmental Macroeconomics
JOBNAME: Kreiser IX PAGE: 1 SESS: 31 OUTPUT: Wed Aug 24 14:42:29 2011 4. Assessment of ﬁscal intervention measures in China: perspectives from environmental macroeconomics Seck L. Tan and Dodo J. Thampapillai INTRODUCTION Macroeconomic policy analysis is invariably conducted without reference to environmental capital (KN) and its depreciation (DKN). Hence policy outcomes from such analysis are inevitably unsustainable. Following the literature in environmental economics (Daly, 1991; Thampapillai, 2006), we deﬁne KN as an aggregate measure of the natural endowments at the disposal of an economy – analogous to the concept of capital stock in standard macroeconomics. In this chapter we demonstrate a simple macroeconomic framework into which DKN is internalized. The level of national income (Y) that ensues as a result of such internalization is more sustainable than that elicited from standard macroeconomic policy analysis which excludes DKN. The internalization also permits the basis for discerning the level of extra taxation that is required in the standard analysis to achieve the same income outcome as that displayed in the internalized framework. An estimate of this added tax is an indicator of the extent of the divergence between the unsustainable and quasi-sustainable time paths. As indicated below, the levels of extra taxation required are exceedingly high. We consider a set of nominal levels of extra taxation (2 per cent and 5 per cent) to meet environmental investment. Taxes, when not injected back into the economy properly, can be regressive. Hence the additional taxes need to be reinvested within the...
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