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General equilibrium impact of an energy-saving policy in the public sector

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  • Philippe Quirion
  • Meriem Hamdi-Cherif

Abstract

We analyse a disregarded environmental policy instrument: a switch in government expenditure away from energy (or other natural resources) and toward a composite good which includes energy-saving expenditure. We first develop two variants of an analytical general equilibrium model. A composite good is produced with constant returns to scale, and energy is imported or produced domestically with diminishing returns, yielding a differential rent to its owners. The government purchases energy and composite goods from private firms. Such a policy unambiguously increases employment. It also raises private consumption and welfare under two conditions: (i) it is not too costly and (ii) the initial share of the resource is smaller in public spending than in private consumption, or the difference is small enough. We then run numerically a model featuring both importation and domestic production of energy (oil, gas and electricity), for the OECD as a whole. Simulations show that employment, welfare and private consumption rise. We provide magnitudes for different parameter values.
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Suggested Citation

  • Philippe Quirion & Meriem Hamdi-Cherif, 2007. "General equilibrium impact of an energy-saving policy in the public sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(2), pages 245-258, October.
    • Handle: RePEc:kap:enreec:v:38:y:2007:i:2:p:245-258
    DOI: 10.1007/s10640-006-9075-2
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    1. A. Lans Bovenberg & Frederick van der Ploeg, 2002. "Environmental Policy, Public Finance and the Labour Market in a Second-Best World," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 6, pages 112-153, Edward Elgar Publishing.
    2. Lawrence H. Goulder & Ian W.H. Parry & Roberton C. Williams III & Dallas Burtraw, 2002. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 27, pages 523-554, Edward Elgar Publishing.
    3. Dixon, Huw & Lawler, Phillip, 1996. " Imperfect Competition and the Fiscal Multiplier," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 219-231, June.
    4. Bosello, Francesco & Carraro, Carlo & Galeotti, Marzio, 2001. "The double dividend issue: modeling strategies and empirical findings," Environment and Development Economics, Cambridge University Press, vol. 6(1), pages 9-45, February.
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    More about this item

    Keywords

    Resource conservation; Energy conservation; Public spending; Employment; General equilibrium; Multi-sectors models; E62; H57; Q38;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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