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Negative Influence of Fiscal Subsidies on Environment: Empirical Evidence from Cross-Country Estimation


  • Mukherjee, Sacchidananda

    () (National Institute of Public Finance and Policy)

  • Chakraborty, Debashis

    () (Indian Institute of Foreign Trade)


It has been observed that a number of developed as well as developing countries provide subsidies to their resource-intensive sectors like agriculture, fisheries, manufacturing etc. However, overproduction and consequent pollution as well as overexploitation of natural resources resulting from the provision of input and output subsidies have been a serious threat to environmental sustainability. An area of concern is that subsidies with potentially harmful environmental impacts are not declining in the recent period, despite the ongoing negotiations through the WTO framework and the UN forums. The present analysis attempts to understand the role of government budgetary subsidies on the overall environmental performance through panel data model estimation for a set of seventy four countries over an eleven year period (2000-2010). The empirical findings confirm that a positive relationship between subsidies and environmental degradation exists in a cross-country framework. The analysis notes that the failure to contain provision of subsidies through timely conclusion of the Doha Round negotiations is also posing a serious threat to the global climate change related concerns.

Suggested Citation

  • Mukherjee, Sacchidananda & Chakraborty, Debashis, 2013. "Negative Influence of Fiscal Subsidies on Environment: Empirical Evidence from Cross-Country Estimation," Working Papers 13/117, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:13/117
    Note: Working Paper 117, 2013

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    References listed on IDEAS

    1. Anderson, Kym & Martin, Will & Valenzuela, Ernesto, 2006. "The relative importance of global agricultural subsidies and market access," World Trade Review, Cambridge University Press, vol. 5(03), pages 357-376, November.
    2. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Measuring distortions to agricultural incentives, revisited," World Trade Review, Cambridge University Press, vol. 7(04), pages 675-704, October.
    3. David L. Kelly, 2006. "Subsidies to Industry and the Environment," Working Papers 0602, University of Miami, Department of Economics.
    4. Matthew A. Cole & Robert J.R. Elliott & Jing Zhang, 2011. "Growth, Foreign Direct Investment, And The Environment: Evidence From Chinese Cities," Journal of Regional Science, Wiley Blackwell, vol. 51(1), pages 121-138, February.
    5. Oskam, Arie J. & Meester, Gerrit, 2006. "How useful is the PSE in determining agricultural support?," Food Policy, Elsevier, vol. 31(2), pages 123-141, April.
    6. He, Jie, 2006. "Pollution haven hypothesis and environmental impacts of foreign direct investment: The case of industrial emission of sulfur dioxide (SO2) in Chinese provinces," Ecological Economics, Elsevier, vol. 60(1), pages 228-245, November.
    7. Atici, Cemal, 2009. "Pollution without subsidy? What is the environmental performance index overlooking?," Ecological Economics, Elsevier, vol. 68(7), pages 1903-1907, May.
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    More about this item


    Budgetary subsidy ; Environmental performance index ; Environmental sustainability ; Per capita CO2 emission ; Human development ; Urbanization ; Government policy;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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