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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.

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Paper provided by National Institute of Public Finance and Policy in its series Working Papers with number 13/117.

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Length: 25
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:npf:wpaper:13/117
Note: Working Paper 117, 2013
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  1. Anderson, Kym & Martin, William J. & Valenzuela, Ernesto, 2006. "The Relative Importance of Global Agricultural Subsidies and Market Access," 2006 Annual meeting, July 23-26, Long Beach, CA 21180, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Jie He, 2011. "Pollution haven hypothesis and Environmental impacts of foreign direct investment: The Case of Industrial Emission of Sulfur Dioxide (SO2) in Chinese provinces," Working Papers halshs-00564699, HAL.
  3. 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.
  4. Cole, Matthew A. & Elliott, Robert J.R. & Zhang, Jing, 2009. "Growth, Foreign Direct Investment and the Environment: Evidence from Chinese Cities," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 41, Verein für Socialpolitik, Research Committee Development Economics.
  5. David Kelly, 2009. "Subsidies to Industry and the Environment," NBER Working Papers 14999, National Bureau of Economic Research, Inc.
  6. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Measuring Distortions to Agricultural Incentives, Revisited," CEPR Discussion Papers 6924, C.E.P.R. Discussion Papers.
  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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