4.6 Article

Fiscal spending and the environment: Theory and empirics

Journal

JOURNAL OF ENVIRONMENTAL ECONOMICS AND MANAGEMENT
Volume 62, Issue 2, Pages 180-198

Publisher

ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.jeem.2011.03.001

Keywords

Government spending; Spending in public goods; Pollution

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During economic crises, governments often increase fiscal spending to stimulate the economy. While the fiscal spending surge may be temporary, spending composition is often altered in favor of expenditures on social programs and other public goods which may persist over time. We model and measure the impact of fiscal spending patterns on the environment. The model predicts that a reallocation of government spending composition towards social and public goods reduces pollution. However, increasing total government spending without altering its composition does not reduce pollution. We empirically test these predictions for air and water pollutants showing that they are fully supported. (C) 2011 Elsevier Inc. All rights reserved.

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