Accounting for the distributional impacts of policy in the green accounts

Abstract

Green income accounting models are designed to appropriately value changes in a country's natural resource (natural capital) base. However, green NNP is useful as a guide for domestic and international policy only to the extent that it accurately reflects the economic goals and policy options of policy makers. For example, international policy designed to slow natural capital depletion in a developing country is more effective if policy makers recognize the developing country's perceived income effects of the policy. Traditional green accounting models do not satisfy this criterion because they are based on the assumption that policy makers are either not concerned with the distributional consequences of policies, and/or are not limited in the instruments available to them. We present an alternative green NNP measure that reflects distributional goals and policy implementation. Using this measure, the depletion (accumulation) of natural capital stocks in excess of economically efficient rates may increase income.