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Counterbalancing the Effects of Climate Change Adaptation on Public Budgets: Factor Taxes, Transfers, or Foreign Lending?


  • Gabriel Bachner

    () (University of Graz)

  • Birgit Bednar-Friedl

    () (University of Graz)


Climate change impacts and public adaptation have manifold effects on public budgets both on the expenditure and revenue side, which calls for instruments to mitigate these effects such that the provision of fundamental public services such as health or education can remain at the same level as without climate change. This paper therefore compares different instruments to counterbalance expenditure cuts induced by climate change impacts and adaptation within a CGE framework. When comparing the climate change scenario to the baseline scenario, we find that revenues – and thus expenditures – decline. When adding different instruments to counterbalance this effect, we find that there are large differences in budgetary and macroeconomic consequences across instruments. While an increase in capital or output taxes reduces the welfare losses of climate change, higher labor taxes amplify welfare losses. Also increased foreign lending has positive macroeconomic effects but leads to a higher deficit.

Suggested Citation

  • Gabriel Bachner & Birgit Bednar-Friedl, 2016. "Counterbalancing the Effects of Climate Change Adaptation on Public Budgets: Factor Taxes, Transfers, or Foreign Lending?," Graz Economics Papers 2016-07, University of Graz, Department of Economics.
  • Handle: RePEc:grz:wpaper:2016-07

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    References listed on IDEAS

    1. Azusa OKAGAWA & Kanemi BAN, 2008. "Estimation of substitution elasticities for CGE models," Discussion Papers in Economics and Business 08-16, Osaka University, Graduate School of Economics.
    2. Bor, Yunchang Jeffrey & Huang, Yophy, 2010. "Energy taxation and the double dividend effect in Taiwan's energy conservation policy--an empirical study using a computable general equilibrium model," Energy Policy, Elsevier, vol. 38(5), pages 2086-2100, May.
    3. Osberghaus, Daniel & Reif, Christiane, 2010. "Total costs and budgetary effects of adaptation to climate change: An assessment for the European Union," ZEW Discussion Papers 10-046, ZEW - Leibniz Centre for European Economic Research.
    4. Rausch, Sebastian, 2013. "Fiscal consolidation and climate policy: An overlapping generations perspective," Energy Economics, Elsevier, vol. 40(S1), pages 134-148.
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    More about this item


    Climate Change Adaptation; Public Finance; Tax Policy; Policy Analysis; CGE;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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