ABSTRACT
This chapter considers the relationship between the global macroeconomy and the environment. It explores whether environmental factors, including the availability of natural resources and the ability of ecosystems to assimilate wastes, pose a constraint to future economic growth. Economic and technological growth since the Industrial Revolution has fostered a dramatic increase in world population. Much of macroeconomic theory and policy is currently oriented toward promoting continuous economic growth. But an overemphasis on policies that promote growth can result in outcomes that severely degrade natural resources and lead to environmental problems such as global climate change. Fiscal policy affects economic behavior by setting taxes that discourage certain actions and subsidies that encourage other choices. “Green” taxes make it more expensive to undertake activities that deplete important natural resources or contribute to environmental degradation.
