Fiscal Policy And Environment:in Case Of Lesotho

Environmental pollution is now a serious global problem and more especially in developing nations. One way to battle this problem is by implementing various pollution control policies. The purpose of this paper is to show that poor developing countries like Lesotho can attain environmental quality while achieving other objectives such as raising distributional equity and growth simultaneously. It uses Environmentally Extended Computable General Equilibrium model (EECGE) for Lesotho to show that simple policy package is a one of the approach to achieve several objectives at the same time. In this study, the model includes different environmental components such as pollution taxes, subsidies and cleaning activities into a CGE model. An Environmentally extended Social Accounting Matrix (ESAM) is used as a core data for calibrating the model.Pollution taxes are believed to burden low income households that spent greater than average share of their income on pollution intensive goods. We propose to offset that effect by introducing two or more instruments at the same time to mitigate the negative impacts or sustain the positive ones, and by returning revenue to low income workers via reduced labour tax. Since some subsidies are found to be harmful to the environment, we show that under general conditions the same goals that can be achieved by subsidies can be achieved by other policies that are also nontoxic to the environment.The results support that integration of different fiscal policies aimed at economic growth, distributional equity and environmental standards can end up with a "win-win" situation not a "trade-off" situation. Fiscal policies also play an important role in the influence of a country’s, socio-political environment and institutions.