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Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting

Author

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  • Eugenia Vella
  • Evangelos Dioikitopoulos

    (Brunel University)

  • Sarantis Kalyvitis

    (DIEES, AUEB)

Abstract

This paper studies optimal fiscal policy, in the form of taxation and the allocation of tax revenues between infrastructure and environmental investment, in a general-equilibrium growth model with endogenous subjective discounting. A green spending reform, defined as a reallocation of government expenditures towards the environment, can procure a double dividend by raising growth and improving environmental conditions, although the environment does not impact the production technology. Also, endogenous Ramsey fiscal policy eliminates the possibility of an `environmental and economic poverty trap'. Contrary to the case of exogenous discounting, green spending reforms are the optimal response of the Ramsey government to a rise in the agents' environmental concerns.

Suggested Citation

  • Eugenia Vella & Evangelos Dioikitopoulos & Sarantis Kalyvitis, 2013. "Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting," DEOS Working Papers 1335, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1335
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    Cited by:

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    3. Evangelos V. Dioikitopoulos & Christos Karydas, 2024. "Sustainability Traps: Patience and Innovation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(6), pages 1425-1444, June.
    4. Evangelos V. Dioikitopoulos & Sugata Ghosh & Eugenia Vella, 2016. "Technological Progress, Time Perception and Environmental Sustainability," Working Papers 2016002, The University of Sheffield, Department of Economics.
    5. Delis, Manthos D. & Iosifidi, Maria, 2020. "Environmentally aware households," Economic Modelling, Elsevier, vol. 88(C), pages 263-279.
    6. Cyrus Chu, C.Y. & Lai, Ching-Chong & Liao, Chih-Hsing, 2014. "How could the non-sustainable Easter Island have been sustained?," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 161-174.
    7. 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.
    8. Christos Karydas & Evangelos V. Dioikitopoulos, 2020. "Sustainability traps: patience and innovation," CER-ETH Economics working paper series 20/330, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2022. "Tax competition in the presence of environmental spillovers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(3), pages 600-626, June.
    10. Giovanni Bella & Paolo Mattana, 2018. "Global indeterminacy and equilibrium selection in a model with depletion of non-renewable resources," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 187-202, November.
    11. Dioikitopoulos, Evangelos V. & Ghosh, Sugata & Karydas, Christos & Vella, Eugenia, 2020. "Roads to prosperity without environmental poverty: The role of impatience," Economics Letters, Elsevier, vol. 186(C).
    12. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
    13. Lu, Hongyou & Xu, Wenli & Xu, Kun, 2016. "How to Make The Fiscal policies Greener in China?——Based on The Perspective of Environmental Macroeconomics," MPRA Paper 70221, University Library of Munich, Germany.
    14. Kei Hosoya, 2024. "Endogenous time preference and infrastructure-led growth with an unexpected numerical example," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(1), pages 3-32, January.
    15. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2019. "On the Principles of Commodity Taxation under Interregional Externalities," University of Cyprus Working Papers in Economics 03-2019, University of Cyprus Department of Economics.

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    More about this item

    Keywords

    endogenous time preference; growth; environmental quality; second-best fiscal policy;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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