Measuring Green Fiscal Multipliers: Heterogeneity in European Countries

This paper evaluates the macroeconomic impact of green public spending by quantifying the responses of GDP, private investment, employment, and labour productivity across 30 European countries from 1995 to 2020. Using linear and nonlinear Local Projection methods, our findings indicate that green fiscal policies can positively and persistently affect GDP and employment levels, crowding-in private investment and generating a positive impact on productivity dynamics. When distinguishing between low- and high-income countries, we observe that the multipliers on GDP and employment are higher for the latter group, although no significant gains in productivity are found. However, productivity gains, albeit small in magnitude, appear to be concentrated in low-income countries. Moreover, our results show that the impact of green investments on GDP and private investment is higher in countries with high levels of green public consumption expenditure over total green public expenditure. These findings underline the importance of tailored fiscal policies to maximize the benefits of green public expenditure across different economic contexts.