Environmental policy and the economic downturn

Alex Bowen and Nicholas Stern

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: environmental policies; pricing environmental externalities; business cycles; fiscal policies; climate change (search for similar items in EconPapers)
JEL-codes: E62 E65 H23 H54 Q54 Q58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2010-01-22
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:37589

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