Fiscal spending and the environment: Theory and empirics |
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Authors: | Ramó n Ló pez,Gregmar I. Galinato,Asif Islam |
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Affiliation: | a3125 Symons Hall, Department of Agricultural and Resource Economics, University of Maryland, College Park, MD 20740, USA;b203C Hulbert Hall, School of Economic Sciences, Washington State University, Pullman, WA 99164, USA;c3108 Symons Hall, Department of Agricultural and Resource Economics, University of Maryland, College Park, MD 20740, USA |
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Abstract: | During economic crises, governments often increase fiscal spending to stimulate the economy. While the fiscal spending surge may be temporary, spending composition is often altered in favor of expenditures on social programs and other public goods which may 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 social and public goods reduces pollution. However, increasing total government spending without altering its composition does not reduce pollution. We empirically test these predictions for air and water pollutants showing that they are fully supported. |
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Keywords: | Government spending Spending in public goods Pollution |
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