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Is public debt environmentally friendly? The role of EU fiscal rules on environmental quality: An empirical assessment

Author

Listed:
  • Giovanni Carnazza

    (Department of Economics and Management, University of Pisa)

  • Thomas I. Renström

    (Department of Economics and Management, Centre for Environmental and Energy Economics, Durham University)

  • Luca Spataro

    (Department of Economics and Management, University of Pisa)

Abstract

The EU has embarked on multiple initiatives reflecting its commitment to environmental enhancement and sustainable transitions. Notable among these are the European Green Deal and the NextGenerationEU recovery plan, both pivotal in fostering eco-friendly policies and sustainable practices within the region. Conversely, the fiscal rules within the EU, designed to manage budgetary deficits and debt-to-GDP ratios, may pose challenges to the implementation of fiscal measures targeted at achieving environmental quality objectives. These regulatory constraints potentially curtail the fiscal space available for policies aligned with the environmental goals set forth by the EU. To address this issue, using a panel of 27 European member countries observed annually from 1995 to 2021, we investigate the impact of two different indicators on the overall carbon intensity: on the one hand, the implicit tax rate on energy reduces environmental pollution; on the other hand, an increase in the stringency of the European fiscal framework and/or the debt-to-GDP ratio increase carbon intensity. From a policy point of view, our outcomes stress the importance of shaping national and European regulations to foster more sustainable environmental development.

Suggested Citation

  • Giovanni Carnazza & Thomas I. Renström & Luca Spataro, 2023. "Is public debt environmentally friendly? The role of EU fiscal rules on environmental quality: An empirical assessment," Working Papers 2023.26, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2023.26
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fiscal Rules; European Union; Energy taxes; CO2 emissions; Government debt;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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