Fiscal spending and the environment: Theory and empirics

Ramón López
Galinato Gergmar
Asif Islam
Journal of environmental economics and management
2011
Number: 
62
Volume: 
2
First Page: 
180
Last Page: 
198
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.