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Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting

  • Eugenia Vella
  • Evangelos V. Dioikitopoulos
  • Sarantis Kalyvitis

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 and growth-maximizing policies eliminate the possibility of an 'environmental and economic poverty trap'. Finally, we examine the optimal response of the Ramsey government to greener preferences.

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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c017_045.

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Length: 43 pages JEL Classification: D90, E21, E62, H31, O44, Q28
Date of creation: Sep 2012
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Handle: RePEc:deg:conpap:c017_045
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