Fiscal Costs of Climate Change in the United States

Lint Barrage ()
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Lint Barrage: Center of Economic Research, ETH Zurich, Zurichbergstrasse 18, 8092 Zurich, Switzerland

No 23/380, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper explores the …scal impacts of climate change and their policy implications for the United States. I develop and empirically quantify a climate-macroeconomic model where climate change can a¤ect (i) government consumption requirements (e.g., healthcare), (ii) transfer payments (e.g., income support), (iii) tax revenues, and where (iv) adaptation to sea level rise (e.g., sea walls) must be publicly …nanced. First, the paper presents a novel bottom-up quanti…cation of …scal costs based on literature synthesis and an empirical analysis of public healthcare costs associated with extreme temperatures and wild…res. Climate change is projected to increase total government consumption (transfer) requirements by around 2.2% (0.4%) by 2100 in a business-as-usual climate policy scenario, with healthcare accounting for the majority of cost increases. Second, I show theoretically that the social cost of carbon must account for climate impacts on both government consumption and household transfer payments if the marginal cost of public funds exceeds unity. Finally, the numerical results indicate that …scal considerations are of …rst order importance for climate policy design. The elasticity of the social cost of carbon with respect to government consumption (transfer) impacts per degree warming is estimated to be around 20 (10). Accounting for …scal considerations moreover increases the projected domestic U.S. welfare bene…ts of climate policy by up to a factor of three.

Pages: 60 pages
Date: 2023-03
New Economics Papers: this item is included in nep-agr, nep-des, nep-ene, nep-env and nep-mac
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Citations: View citations in EconPapers (1)

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