On the Nexus Between Fiscal Policies and Sustainable Development

Ramon Lopez and Eugenio Figueroa ()

Sustainable Development, 2016, vol. 24, issue 4, 201-219

Abstract: This paper hypothesizes that fiscal policy is one important factor determining whether or not environmentally and socially sustainable economic growth is possible. We postulate that tax policies affect the incentives to make the economy more or less dependent on natural resources and the environment as factors of production. So‐called pro‐growth tax policies consisting of a low tax burden, low direct taxes but high indirect ones, affect the composition of factor endowment, often inducing overinvestment in physical capital and underinvestment in human capital, including education and health. These policies in part explain a structure of production heavily dependent on natural‐resource‐based and environmentally dirty industries. Moreover, these tax policies induce high levels of inequality, which ultimately may render economic growth socially and politically unsustainable. This analysis has important implications for Chile and for other developing countries, especially in Latin America, which are highly dependent on natural resources and have highly unequal income distributions. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:wly:sustdv:v:24:y:2016:i:4:p:201-219

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