SummaryIt is now commonplace for development policy makers to refer to the contributions of businesses to the achievement of development goals and the importance of collaborations between businesses and development agencies. Many businesses give greater attention to the development impacts of their activities. There has been relatively little systematic and critical thinking about where and how businesses can contribute most effectively to the achievement of development objectives and, accordingly, how development agents should prioritise and focus their collaborations with businesses. This paper initiates such a systematic and critical approach, starting from the question 'How can development policy work with and on businesses and the business environment so that the private goals of businesses contribute to most effectively to public development objectives?' It identifies three basic categories of business and development initiatives: increasing the overall level of business activity, addressing sustainability challenges and promoting business activities that are particular benefit to the poor. The paper considers three major challenges for maximising the contributions businesses to the achievement of development goals. The first is increasing the alignments between business and objectives and development objectives, and the paper considers both the different ways this can be achieved and when such alignments are overly difficult to achieve. The second is to prioritise interventions. When resources are scarce, it is essential to pursue interventions that have the biggest development impact. This implies choosing interventions with goals and approaches that are most likely to be successful; in so doing, examining issues of feasibility, effectiveness and efficiency. So that scarce resources are focused on the areas of greatest benefit. The third is to achieve scaling up and systemic change. There are many examples of business activities that have positive development impacts but which are being pursued at small-scale and/or in quite specific geographical or sectoral contexts. How can such initiatives be up-scaled, translated and/or replicated in order to enhance impacts on the poor in ways that endure beyond the specific interventions applied?Keywords: Business and development; markets; inclusiveness; binding constraints; alignments of interest. 4John Humphrey is a Research Fellow at IDS In the Globalisation Team. He has a Ph.D. in sociology from the University of Sussex. His has researched and published extensively on global value chains, authoring and co-authoring key texts on global value chain theory, the organisation of international trade in fresh fruit and vegetables, and the implications of private standards for value chain management. His recent research includes work on food-based solutions for the challenge of micronutrient malnutrition in sub Saharan Africa and South Asia and the opportunities for and limits to private sector production and marketing of nutrient-rich foods.

This research explores the impacts that REDD+ could have on forest tax systems in three countries in sub-Saharan Africa, and considers how policy could be designed to increase the chances that these impacts are positive. To assess this, a methodological framework is identified and adapted. The framework has been used to explore how the implementation of a new policy regime affects the interests and thus behaviours of actors in related, existing regimes. The implementation of REDD+ in relation to forest tax systems seems well suited to such an approach.

Summary Developing countries face increasing environmental pressures across a range of dimensions. At the same time, the capacity of these governments to effectively pursue policy goals is often constrained by a lack of resources, with tax revenues in many countries being half of what is common in developed economies. For some, these are distinct issues that should be considered separately. For others, they can and should be dealt with together. This paper reviews the potential of one type of mechanism to address both goals simultaneously: environmental taxation. After distinguishing between different forms, the paper uses a Pigouvian framework to organise and analyse theoretical and empirical evidence on the impacts of environmental taxes in developing countries. Despite limited evidence it is possible to draw some conclusions. First, taxes that are carefully designed and reflect local conditions can be effective in achieving environmental goals, and may be the best instruments under some conditions. Second, while it is possible to raise significant revenues, there may be less potential than is often supposed: environmental goals are more likely to be achieved where tax revenues are used, in part, to further the same ends; it may also be necessary – and desirable – to use some revenue to offset regressive effects; also, support for environmental taxes is likely to be undermined if they are seen to be revenue raising tools. More broadly, limits to the effectiveness of environmental taxes become more severe as the number of policy goals increases: achieving ‘double‐dividends’ may be hard, and ‘triple‐dividends’ harder still. A more realistic aim, therefore, may be a ‘one and a half’ dividend approach, with the environmental goal being the primary focus. Third, regardless of the quality of design, environmental taxes may fail without strong, high‐level political support, particularly where they conflict with other policy goals that do have this support. In the light of this analysis, the penultimate section of the paper develops a decision‐making framework, designed to help policy‐makers weigh the merits of environmental taxes to achieve specified goals. The paper concludes with a comprehensive research agenda.

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