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The Challenge of Addressing Consumption Pollutants with Fiscal Policy

  • Gregmar Galinato

    ()

    (School of Economic Sciences, Washington State University)

We develop a theoretical model that elucidates the relationship between the quality of governance, composition of government spending and pollution as a by-product of the consumption process. We find that a shift in government spending towards goods that alleviate market failure increases income, which raises consumption pollution, but also increases environmental regulations, which decreases consumption pollution. Conditional on the government adopting a democratic regime, the effect through environmental regulations outweigh the effect through income leading to lower consumption pollution. We estimate an empirical model and find that the results support our theoretical predictions.

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/Galinato/WP2014-1.pdf
File Function: First version, 2014
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Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2014-1.

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Length: 42 pages
Date of creation:
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Handle: RePEc:wsu:wpaper:galinato-11
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  1. Per G. Fredriksson & Eric Neumayer & Richard Damania & Scott Gates, 2005. "Environmentalism, democracy, and pollution control," LSE Research Online Documents on Economics 630, London School of Economics and Political Science, LSE Library.
  2. Halkos, George E. & Paizanos, Epameinondas Α., 2013. "The effect of government expenditure on the environment:An empirical investigation," Ecological Economics, Elsevier, vol. 91(C), pages 48-56.
  3. Islam, Asif M. & López, Ramón E., 2013. "Government Spending and Air Pollution in the US," Working Papers 144406, University of Maryland, Department of Agricultural and Resource Economics.
  4. López, Ramón & Palacios, Amparo, 2011. "Why Europe has become environmentally cleaner: Decomposing the roles of fiscal, trade and environmental policies," CEPR Discussion Papers 8551, C.E.P.R. Discussion Papers.
  5. Fredriksson, Per G. & List, John A. & Millimet, Daniel L., 2003. "Bureaucratic corruption, environmental policy and inbound US FDI: theory and evidence," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1407-1430, August.
  6. Fullerton, Don & Kim, Seung-Rae, 2008. "Environmental investment and policy with distortionary taxes, and endogenous growth," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 141-154, September.
  7. Ramon Lopez & Gregmar Galinato & Asif Islam, 2009. "Fiscal Spending and the Environment: Theory and Empirics," Working Papers 2009-22, School of Economic Sciences, Washington State University.
  8. McAusland, Carol, 2003. "Trade, Politics,and the Environment: Tailpipe vs. Smokestack," University of California at Santa Barbara, Economics Working Paper Series qt0406x646, Department of Economics, UC Santa Barbara.
  9. Bernauer, Thomas & Koubi, Vally, 2009. "Effects of political institutions on air quality," Ecological Economics, Elsevier, vol. 68(5), pages 1355-1365, March.
  10. B. Mak Arvin & Byron Lew, 2009. "Does democracy affect environmental quality in developing countries?," Applied Economics, Taylor & Francis Journals, vol. 43(9), pages 1151-1160.
  11. Lopez, Ramon & Galinato, Gregmar I., 2007. "Should governments stop subsidies to private goods? Evidence from rural Latin America," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1071-1094, June.
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