Chapter 26: Macroeconomic Policies and the Environment

It is increasingly recognized that macroeconomics via its impacts on the level and structure of economic activities in a region, a country, or the world at large, has a multitude of direct and indirect environmental impacts, requiring an understanding of linkages between the ecosystems and the economic systems (e.g. Gandhi, 1996).

At the same time, it is of interest to measure the macroeconomic consequences of different levels of environmental (e.g. transport) externalities, and of measures to reduce and internalize these, whether these measures are of a macroeconomic nature, or, for example, regulatory command and control measures. This raises questions such as: what are the impacts of transport externalities on economic growth? In short, macroeconomic policies can have profound and often unexpected environmental effects, which again can impact on macroeconomic performance, such as growth rates, competitiveness, budgetary balance, balance of payments, and distribution. This is a topic surrounded by much mystique and misunderstanding, and we will seek to clarify on this in the following.