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Fiscal Spending and the Environment: Theory and Empirics

  • Ramon Lopez
  • Gregmar Galinato
  • Asif Islam

    ()

    (School of Economic Sciences, Washington State University)

During economic crises, governments often increase fiscal spending to stimulate the economy. While the fiscal spending surge is sometimes temporary, recessions are opportunities to revise the spending composition often in favor of expenditures in social programs and other public goods which tend to persist over time. We model and measure the impact of fiscal spending patterns on the environment. The model predicts that a reallocation of government spending composition towards public goods reduces pollution while increasing total government spending has an ambiguous effect on pollution. We find consistent empirical results for various air and water pollutants. Increased environmental sustainability may be an important silver lining of economic crises.

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/Galinato/WP2009-22.pdf
File Function: First version, 2009
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Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2009-22.

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Length: 53 pages
Date of creation: Aug 2009
Handle: RePEc:wsu:wpaper:galinato-4
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