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The Challenge of Addressing Consumption Pollutants with Fiscal Policy

Author

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  • Gregmar Galinato

    () (School of Economic Sciences, Washington State University)

Abstract

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.

Suggested Citation

  • Gregmar Galinato, "undated". "The Challenge of Addressing Consumption Pollutants with Fiscal Policy," Working Papers 2014-1, School of Economic Sciences, Washington State University.
    • Handle: RePEc:wsu:wpaper:galinato-11
    as

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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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    References listed on IDEAS

    as
    1. López, Ramón & Galinato, Gregmar I. & Islam, Asif, 2011. "Fiscal spending and the environment: Theory and empirics," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 180-198, September.
    2. McAusland, Carol, 2008. "Trade, politics, and the environment: Tailpipe vs. smokestack," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 52-71, January.
    3. 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.
    4. Islam, Asif M. & López, Ramón E., 2015. "Government Spending and Air Pollution in the US," International Review of Environmental and Resource Economics, now publishers, vol. 8(2), pages 139-189, July.
    5. Fredriksson, Per G. & Neumayer, Eric & Damania, Richard & Gates, Scott, 2005. "Environmentalism, democracy, and pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 343-365, March.
    6. 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.
    7. Ivar Kolstad & Arne Wiig, 2011. "Does democracy reduce corruption?," CMI Working Papers 4, CMI (Chr. Michelsen Institute), Bergen, Norway.
    8. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, May.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. Bernauer, Thomas & Koubi, Vally, 2009. "Effects of political institutions on air quality," Ecological Economics, Elsevier, vol. 68(5), pages 1355-1365, March.
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    Citations

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    Cited by:

    1. Halkos, George & Paizanos, Epameinondas, 2015. "Effects of Macroeconomic Policy on Air Quality: Evidence from the US," MPRA Paper 62001, University Library of Munich, Germany.
    2. Halkos, George & Paizanos, Epameinondas, 2015. "Environmental Macroeconomics: A critical literature review and future empirical research directions," MPRA Paper 67432, University Library of Munich, Germany.
    3. Halkos, George & Paizanos, Epameinondas, 2015. "Fiscal policy and economic performance: A review of the theoretical and empirical literature," MPRA Paper 67737, University Library of Munich, Germany.
    4. Halkos, George & Paizanos, Epameinondas, 2014. "Exploring the effect of economic growth and government expenditure on the environment," MPRA Paper 56084, University Library of Munich, Germany.
    5. 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.

    More about this item

    Keywords

    Government spending; public goods; consumption based pollution; democracy;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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