IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v111y2022ics0140988322000767.html
   My bibliography  Save this article

Can public debt mitigate environmental debt? Theory and empirical evidence

Author

Listed:
  • Boly, Mohamed
  • Combes, Jean-Louis
  • Menuet, Maxime
  • Minea, Alexandru
  • Motel, Pascale Combes
  • Villieu, Patrick

Abstract

This paper investigates the relationship between public debt and environmental debt—reflecting CO2 carbon concentration. First, using an endogenous growth model in which pollution abatement spending can be financed by public debt, we show that public debt and environmental debt are complementary in the long run and usually substitutes in the short run. Second, these predictions are empirically confirmed: in particular, a 1% increase in the public debt ratio leads to an increase of 0.74% in cumulative CO2 per capita in the long run. Our findings emphasize the difficulty of defining policies that jointly serve both the economic (fiscal) and the environmental goals, due to the short- and long-run conflicting environmental effects of policies that either reduce or do not constrain public debt.

Suggested Citation

  • Boly, Mohamed & Combes, Jean-Louis & Menuet, Maxime & Minea, Alexandru & Motel, Pascale Combes & Villieu, Patrick, 2022. "Can public debt mitigate environmental debt? Theory and empirical evidence," Energy Economics, Elsevier, vol. 111(C).
    • Handle: RePEc:eee:eneeco:v:111:y:2022:i:c:s0140988322000767
    DOI: 10.1016/j.eneco.2022.105895
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988322000767
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2022.105895?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Mauro, Paolo & Romeu, Rafael & Binder, Ariel & Zaman, Asad, 2015. "A modern history of fiscal prudence and profligacy," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 55-70.
    3. Boucekkine, Raouf & Nishimura, Kazuo & Venditti, Alain, 2015. "Introduction to financial frictions and debt constraints," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 271-275.
    4. Mouez Fodha & Thomas Seegmuller, 2014. "Environmental Quality, Public Debt and Economic Development," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(4), pages 487-504, April.
    5. Eberhardt, Markus & Presbitero, Andrea F., 2015. "Public debt and growth: Heterogeneity and non-linearity," Journal of International Economics, Elsevier, vol. 97(1), pages 45-58.
    6. Mouez Fodha & Thomas Seegmuller & Hiroaki Yamagami, 2018. "Environmental Tax Reform under Debt Constraint," Annals of Economics and Statistics, GENES, issue 129, pages 33-52.
    7. Karydas, Christos & Zhang, Lin, 2019. "Green tax reform, endogenous innovation and the growth dividend," Journal of Environmental Economics and Management, Elsevier, vol. 97(C), pages 158-181.
    8. Benassy-Quere, Agnes & Coeure, Benoit & Jacquet, Pierre & Pisani-Ferry, Jean, 2010. "Economic Policy: Theory and Practice," OUP Catalogue, Oxford University Press, number 9780195322736, Decembrie.
    9. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    10. Joakim Westerlund, 2007. "Testing for Error Correction in Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(6), pages 709-748, December.
    11. Mouez Fodha & Thomas Seegmuller, 2014. "Environmental Quality, Public Debt and Economic Development," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(4), pages 487-504, April.
    12. Maxime Menuet & Alexandru Minea & Patrick Villieu, 2018. "Deficit, monetization, and economic growth: a case for multiplicity and indeterminacy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(4), pages 819-853, June.
    13. Combes, J.-L. & Combes Motel, P. & Minea, A. & Villieu, P., 2015. "Deforestation and seigniorage in developing countries: A tradeoff?," Ecological Economics, Elsevier, vol. 116(C), pages 220-230.
    14. Minea, Alexandru & Villieu, Patrick, 2012. "Persistent Deficit, Growth, And Indeterminacy," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S2), pages 267-283, September.
    15. Azar, Christian & Holmberg, John, 1995. "Defining the generational environmental debt," Ecological Economics, Elsevier, vol. 14(1), pages 7-19, July.
    16. Brock, W. & Xepapadeas, A., 2017. "Climate change policy under polar amplification," European Economic Review, Elsevier, vol. 99(C), pages 93-112.
    17. Rausch, Sebastian, 2013. "Fiscal consolidation and climate policy: An overlapping generations perspective," Energy Economics, Elsevier, vol. 40(S1), pages 134-148.
    18. H. Damon Matthews, 2016. "Quantifying historical carbon and climate debts among nations," Nature Climate Change, Nature, vol. 6(1), pages 60-64, January.
    19. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    20. Mouez Fodha & Thomas Seegmuller & Hiroaki Yamagami, 2018. "Environmental Tax Reform under Debt Constraint," Annals of Economics and Statistics, GENES, issue 129, pages 33-52.
    21. Ottmar Edenhofer & Brigitte Knopf & Céline Bak & Amar Bhattacharya, 2017. "Aligning climate policy with finance ministers' G20 agenda," Nature Climate Change, Nature, vol. 7(7), pages 463-465, July.
    22. Jamie M. Sommer & Michael Restivo & John M. Shandra, 2020. "The United States, Bilateral Debt-for-Nature Swaps, and Forest Loss: A Cross-National Analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 56(4), pages 748-764, April.
    23. Kahn, James R. & McDonald, Judith A., 1995. "Third-world debt and tropical deforestation," Ecological Economics, Elsevier, vol. 12(2), pages 107-123, February.
    24. Bovenberg, A Lans & Smulders, Sjak A, 1996. "Transitional Impacts of Environmental Policy in an Endogenous Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 861-893, November.
    25. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271, Elsevier.
    26. Maxime Menuet & Alexandru Minea & Patrick Villieu, 2018. "Deficit, monetization, and economic growth: a case for multiplicity and indeterminacy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(4), pages 819-853, June.
    27. Lans Bovenberg, A. & Smulders, Sjak, 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Journal of Public Economics, Elsevier, vol. 57(3), pages 369-391, July.
    28. W. J.W. Botzen & J. M. Gowdy & J. C.J.M. Van Den Bergh, 2008. "Cumulative CO 2 emissions: shifting international responsibilities for climate debt," Climate Policy, Taylor & Francis Journals, vol. 8(6), pages 569-576, November.
    29. Horvath Michal, 2011. "Alternative Perspectives on Optimal Public Debt Adjustment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-22, November.
    30. Fullerton, Don & Kim, Seung-Rae, 2008. "Environmental investment and policy with distortionary taxes, and endogenous growth," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 141-154, September.
    31. John M. Hartwick, 1997. "Paying down the Environmental Debt," Land Economics, University of Wisconsin Press, vol. 73(4), pages 508-515.
    32. Sir Nicholas Stern, 2006. "What is the Economics of Climate Change?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 7(2), pages 1-10, April.
    33. Dal Didia, 2001. "Debt-for-Nature Swaps, Market Imperfections, and Policy Failures as Determinants of Sustainable Development and Environmental Quality," Journal of Economic Issues, Taylor & Francis Journals, vol. 35(2), pages 477-486, June.
    34. Jhy-hwa Chen & Ching-chong Lai & Jhy-yuan Shieh, 2003. "Anticipated Environmental Policy and Transitional Dynamics in an Endogenous Growth Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 25(2), pages 233-254, June.
    35. Knut Rosendahl, 1997. "Does improved environmental policy enhance economic growth?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 9(3), pages 341-364, April.
    36. Lint Barrage, 2020. "Optimal Dynamic Carbon Taxes in a Climate–Economy Model with Distortionary Fiscal Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 1-39.
    37. Tahvonen, Olli & Kuuluvainen, Jari, 1991. "Optimal growth with renewable resources and pollution," European Economic Review, Elsevier, vol. 35(2-3), pages 650-661, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mireille Chiroleu-Assouline & Mouez Fodha, 2023. "Debt, tax and environmental policy [Dette, taxe et politique environnementale]," Post-Print halshs-04181981, HAL.
    2. Robbie Maris & Mark Holmes, 2023. "Economic Growth Theory and Natural Resource Constraints: A Stocktake and Critical Assessment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(2), pages 255-268, June.
    3. Stephen K. Dimnwobi & Kingsley I. Okere & Bernard C. Azolibe & Kingsley C. Onyenwife, 2023. "Towards a Green Future for Sub-Saharan Africa: Do electricity access and public debt drive environmental progress?," Working Papers 23/043, European Xtramile Centre of African Studies (EXCAS).
    4. Stephen K. Dimnwobi & Kingsley I. Okere & Bernard C. Azolibe & Kingsley C. Onyenwife, 2023. "Towards a Green Future for Sub-Saharan Africa: Do electricity access and public debt drive environmental progress?," Working Papers of the African Governance and Development Institute. 23/043, African Governance and Development Institute..

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohamed Boly & Jean-Louis Combes & Pascale Combes Motel & Maxime Menuet & Alexandru Minea & Patrick Villieu, 2019. "Public debt versus Environmental debt: What are the relevant Tradeoffs?," Post-Print hal-02315163, HAL.
    2. Maxime Menuet & Alexandru Minea & Patrick Villieu, 2019. "The Peril of Fiscal Rules," Post-Print hal-02314996, HAL.
    3. Nicolas Clootens & Francesco Magris, 2024. "Nonrenewable resource use sustainability and public debt," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(1), February.
    4. Chu, Hsun & Lai, Ching-chong & Liao, Chih-hsing, 2016. "A Note On Environment-Dependent Time Preferences," Macroeconomic Dynamics, Cambridge University Press, vol. 20(6), pages 1652-1667, September.
    5. Maxime MENUET & Alexandru MINEA & Patrick VILLIEU & Anastasios XEPAPADEAS, 2021. "Growth, Endogenous Environmental Cycles, and Indeterminacy," LEO Working Papers / DR LEO 2889, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    6. Mónica Meireles & Isabel Soares & Óscar Afonso, 2010. "Economic Growth, Ecological Technology and Public Intervention," FEP Working Papers 378, Universidade do Porto, Faculdade de Economia do Porto.
    7. Maxime Menuet & Alexandru Minea & Patrick Villieu & Anastasios Xepapadeas, 2020. "Economic Growth and the Environment: A Theoretical Reappraisal," DEOS Working Papers 2031, Athens University of Economics and Business.
    8. Chu, Hsun & Lai, Ching-chong, 2014. "Abatement R&D, market imperfections, and environmental policy in an endogenous growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 41(C), pages 20-37.
    9. Nicolas Clootens & Francesco Magris, 2021. "The Environmental Unsustainability of Public Debt: Non-Renewable Resources, Public Finances Stabilization and Growth," Working Papers 2021.06, FAERE - French Association of Environmental and Resource Economists.
    10. Maxime Menuet & Alexandru Minea & Patrick Villieu, 2019. "Increasing Returns, Balanced-Budget Rules, and Aggregate Fluctuations," Post-Print hal-02315041, HAL.
    11. Maxime Menuet, 2019. "Fiscal rule and shock amplification : A stochastic endogenous growth model," Working Papers hal-02153887, HAL.
    12. Maxime MENUET & Alexandru MINEA & Patrick VILLIEU, 2017. "Public Debt, Endogenous Growth Cycles and Indeterminacy," LEO Working Papers / DR LEO 2467, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    13. Dao, Nguyen Thang & Edenhofer, Ottmar, 2018. "On the fiscal strategies of escaping poverty-environment traps towards sustainable growth," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 253-273.
    14. Ricci, Francesco, 2007. "Channels of transmission of environmental policy to economic growth: A survey of the theory," Ecological Economics, Elsevier, vol. 60(4), pages 688-699, February.
    15. Maxime Menuet & Alexandru Minea & Patrick Villieu, 2019. "Budget Rules, Distortionnary Taxes, and Aggregate Instability: A reappraisal," Working Papers hal-02153856, HAL.
    16. Tian Zhao & Zhixin Liu, 2022. "Drivers of CO 2 Emissions: A Debt Perspective," IJERPH, MDPI, vol. 19(3), pages 1-18, February.
    17. Marion Davin & Mouez Fodha & Thomas Seegmuller, 2023. "Pollution in a globalized world: Are debt transfers among countries a solution?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 21-38, March.
    18. Dagmar Nelissen & Till Requate, 2007. "Pollution-reducing and resource-saving technological progress," International Journal of Agricultural Resources, Governance and Ecology, Inderscience Enterprises Ltd, vol. 6(1), pages 5-44.
    19. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271, Elsevier.
    20. Fisera, Boris & Workie Tiruneh, Menbere & Hojdan, David, 2021. "Currency depreciations in emerging economies: A blessing or a curse for external debt management?," International Economics, Elsevier, vol. 168(C), pages 132-165.

    More about this item

    Keywords

    Environmental debt; Public debt; CO2 emissions; Panel data; Welfare;
    All these keywords.

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:111:y:2022:i:c:s0140988322000767. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.