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Fiscal Spending and the Environment: Theory and Empirics

Author

Listed:
  • Ramon Lopez
  • Gregmar Galinato
  • Asif Islam

    (School of Economic Sciences, Washington State University)

Abstract

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.

Suggested Citation

  • 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.
    • Handle: RePEc:wsu:wpaper:galinato-4
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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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    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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