Public Expenditure Policy and the Environment: A Review and Synthesis

IMF Working Papers, March 1, 1993

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Canonical URL: Public Expenditure Policy and the Environment: A Review and Synthesis

Authors: Kenneth M. Miranda, Ian W.H. Parry, Sanjeev Gupta
Date: March 1, 1993
Core thesis: Commonly cited environmental instruments in the legal, regulatory, and fiscal domains are intended primarily to address market failures to ensure that environmental degradation and resource use is contained to appropriate levels. However, in many instances, environmental degradation is rooted not in market failure, but rather in policy failure.
Scope: Identifies areas of public expenditure policy that interact with the environment and argues that specific public expenditure reforms can move an economy towards “sustainable” development.

Public expenditure policies can be a source of environmental degradation when they embody policy failures rather than market failures.
Reforming certain types of subsidies is central to reducing environmentally harmful incentives embedded in public expenditures.
Increased operations and maintenance expenditures are necessary to sustain environmental benefits from public capital.
Thorough environmental assessment of capital projects is essential to align public investment with environmental objectives.
The combined effect of subsidy reform, appropriate maintenance spending, and environmental assessments will tend to benefit the environment and support sustainable development.

Reform certain types of subsidies that create perverse environmental incentives, including subsidies related to inputs and outputs in agroindustries and irrigation.
Increase operations and maintenance expenditures to preserve the environmental effectiveness of public capital projects.
Implement thorough environmental assessments for capital projects to evaluate and mitigate environmental impacts before approval and execution.

Subject: Agroindustries, Economic sectors, Environment, Environmental policy, Expenditure, Government subsidies
Keywords: Agroindustries, balance of payments, environmental damage, Environmental policy, fertilizer subsidy, Global, Government subsidies, input subsidy, irrigation subsidy, output subsidy, pesticide subsidy, public expenditure, reform proceeds, subsidy reform, supply curve, welfare cost bde, WP