Government Controls (Edexcel IGCSE Economics)

Economic growth

• Environmental regulations, legislation, permits, and fines impose costs and affect the ease of doing business

• This leads to decreased levels of output and may lead to a slowdown in economic growth

• E.g. In 2023, Anglian Water of the UK was fined £2.65 million for violating environmental permits in the North Sea, increasing their costs

Low and stable inflation

• While pollution permits, fines, and regulation raises costs of production, this can lead lead to cost-push inflation

Low unemployment

• Government controls to protect the environment may indirectly increase unemployment in some industries (such as coal powered plants) by causing redundant workers

• On the other hand, they can drive innovation and create employment opportunities in green industries

Stable current account on balance of payments

• Higher cost exports may be less desirable abroad, causing exports to fall

• Domestic output becomes more expensive than equivalent imports, leading to more imports and a worsening of the current account

Environmental protection

• Negative externalities associated with pollution and resource depletion is reduced and overall sustainability is improved

The redistribution of income

• Government controls may lead to higher costs, which disproportionately impacts lower income earners e.g. a tax on car emissions

• However, as industrial pollution tends to be concentrated in low-income and industrial areas, it aims to protect worse off in society