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The standard theoretical literature has shown that environmental sustainability and positive economic growth are not incompatible as long as environmental policies are optimal. However, in showing this result earlier studies have relied on strong assumptions that may appear to charge the dice in favor of such result. Here we show that once the role of the consumption composition effect is recognized, environmentally sustainable economic growth may exist even if some of the most questionable assumptions used by the canonical models are relaxed. In particular, we show that sustainable growth is possible even if environmental and man-made factors of production are complement rather than highly substitutable as has been invariably assumed by the literature and even if technological change is entirely pollution-augmenting.

We show that the tax system in Chile is insufficient, inefficient and inequitable. Insufficient because it does not yield enough revenues for the state to promote human capital development and to face poverty in a more comprehensive way; inefficient because it is highly unbalanced causing most of the tax burden to be concentrated in very few taxes while neglecting the use of the least distortion-prone tax mechanisms available; inequitable because it forces the middle and low income groups to shoulder most of the tax burden while allowing the super rich to get away paying one of the lowest tax rates among middle income and advanced countries.

This paper studies the interactions between harvesters that depend on the renewable resource as a vital factor of production (i.e., fisheries) and industries that can have important impacts on the renewable resource but whose production does not depend on it (i.e., off-shore oil extraction) in the context of a growing economy. We examine these issues in the context of a closed economy focusing on how the co-existence between these two sectors affects the potential for sustainable development and how the well-being of the poor, i.e., the harvesters, is affected. We identify conditions under which existence and expansion of a resource-impacting sector may make sustainable development more likely. However, if these conditions are not met growth of the resource-impacting sector leads to resource depletion or even complete extinction and thus to the disappearance of the harvesting activity over the long run.

Three new structural factors underlie the latest great world crisis: (1) the incorporation of highly populated countries into the growth process; (2) The increasing scarcity of the environment and certain natural resources; (3) the dramatic concentration of wealth and income in the advanced economies over the last two decades. These structural changes have significantly tightened the links between world growth and commodity demand, made the world commodity supply increasingly inelastic, and rendered economic growth more dependent on lax monetary and financial policies, respectively. All this may make the world economy highly vulnerable to crises and may make the recovery from the current crisis more difficult.

This paper examines how certain new structural factors have contributed to the latest great financial crisis and world recession of 2008-09. We focus on three of these structural factors: (i) the incorporation of highly populated countries into the growth process; (ii) The increasing scarcity of the environment and certain natural resources; (iii) the unprecedented concentration of wealth and income in the advanced economies over the last three decades. These structural changes have significantly tightened the links between world growth and commodity prices, have made the world commodity supply to become increasingly inelastic, and have made growth to become more dependent on lax monetary policies, respectively. All this may make the recovery from the current crisis much more difficult, implying a deeper and more protracted crisis than most previous crises. With this framework in mind we focus on the likely affect of the financial crisis upon the natural resources in the developing world, by drawing implications from the 1995 Mexico-originated Peso crisis and the 1998-99 Asia crises. We find that the impact of the current crisis is likely to degrade further the environmental resources and the tightening of environmental policies in response to such degradation may make the commodity supply curve of commodities even steeper in the future.

Government spending has significant environmental implications. This paper analyzes the effect of the allocation of government spending between public goods broadly defined and private goods or non-social subsidies on air and water pollution. The theoretical model predicts that a reallocation of expenditures from private subsidies to public goods improves environmental quality by reducing production pollution. We estimate an empirical model that shows that such a reallocation causes a significant reduction in air pollutants namely sulfur dioxide and lead and an improvement in water quality measures including dissolved oxygen and biological oxygen demand.

Explicitly accounting for certain basic physical laws governing the “earth” sector dramatically enriches our ability to explain a high degree of diversity in observed patterns of economic growth. We provide a theoretical explanation of why some countries have been able to sustain a more or less constant and positive rate of economic growth for many decades while so many others have failed to do so. The analysis predicts that countries that have an over abundance of physical capital (a concept that is precisely defined in the text) may be unable to sustain a positive rate of economic growth over the long run. Too much physical capital may affect the dynamics of the economy ultimately leading to stagnation. The plausibility of the growth model introduced here is demonstrated by its ability to predict some important stylized facts for which standard endogenous growth models generally cannot account.

Government spending should be regarded as a social and political phenomenon, not merely as a technical choice. We argue that there is an implicit contract between the organized elites and politicians which often leads to a pro-elite allocation of public resources. A natural and simple taxonomy of government spending follows from this view: spending in public goods broadly defined which mitigate market failures versus spending in non-social subsidies, mainly a vehicle to serve the elites. We theoretically and empirically show that pro-elite spending biases are costly in terms of economic growth. The empirical findings are exceptionally robust.

This paper explores the conditions for sustainable development through two models of economic growth that elucidates two extremes; an open economy with constant prices, and a closed economy with endogenous prices. Sustainable development is easier to achieve in the case of the former than the latter. A closed economy requires a high degree of flexibility of its consumers, with an elasticity of substitution of clean goods substantially above 1 in order to achieve sustainable development. Three mechanisms have to work in tandem: the technique, composition, and growth-limit effects. In contrast, the open economy requires no flexibility on the part of its consumers and may achieve sustainable development through only one mechanism – the composition effect. For the open economy case, the composition effect can completely suppress the technique effect, resulting in both mechanisms acting like substitutes. On the other hand, for the closed economy case, both effects are highly complementary. The historical experience of the North indicates more similarities with the open economy paradigm.

Trade, the exchange of goods and services across countries, is often viewed as an engine of economic growth. Benefits of liberalized trade include access to a larger variety of goods and services to consumers, easier access to foreign technologies, access to larger markets for producers, and increased efficiency in resource allocation. The impact of trade on the environment, however, is a contentious issue; air and water pollution, the degradation of natural habitats and loss of species, and global pollutants, particularly carbon dioxide emissions, are major concerns.

The paper discusses the economic effects of misallocation of public expenditures in favor of private goods rather than public goods. It first lays out certain key hypotheses regarding the consequences of the apparent public sector allocation inefficiency and the factors that explain this phenomenon. It then discusses existing empirical evidence that lends at least indirect support to these hypotheses. Finally, it presents new empirical evidence for the rural sector in Latin America which documents the extent of the misallocation of public expenditures, its consequences for agricultural growth and rural poverty, and the role of certain key politico-institutional factors in explaining the misallocation.