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From Debt to Green Growth: A Policy Proposal

Author

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  • Tilemahos Efthimiadis

    (Unit for Energy Security, Distribution and Markets, Directorate for Energy, Mobility and Climate, Joint Research Centre, European Commission, P.O. Box 2, 1755 ZG Petten, The Netherlands)

  • Panagiotis Tsintzos

    (Department of Economics, School of Economics and Business Administration, University of Thessaly, 28hs Octovriou 78, 38333 Volos, Greece)

Abstract

Concurrent and overlapping crises, such as the COVID-19 pandemic and increases in energy and food costs, are particularly affecting developing and poor countries, in addition to the continuous and growing negative impacts from climate change. In this paper, we develop a policy proposal and show through a model how an implicit debt servicing standstill for a country with large external debt can be combined with a policy for promoting power generation from renewable energy sources, with positive effects for economic growth and for ensuring debt sustainability. Through a typical decentralized competitive general equilibrium endogenous growth model, we show the long term effects of partially redirecting debt payments to green energy infrastructure to facilitate economic growth and achieve a sustained debt-to-output level. The results indicate that a higher percentage of external public debt increases public capital accumulation, resulting in a higher long-run growth rate, albeit with a slower transition to a steady state. Equivalent results are found regarding the level of financial aid provided for public productive capital.

Suggested Citation

  • Tilemahos Efthimiadis & Panagiotis Tsintzos, 2023. "From Debt to Green Growth: A Policy Proposal," Sustainability, MDPI, vol. 15(4), pages 1-14, February.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:4:p:3506-:d:1068250
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    References listed on IDEAS

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    Keywords

    energy; investments; debt;
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