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Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting

Eugenia Vella (), Evangelos Dioikitopoulos () and Sarantis Kalyvitis ()

No 1335, DEOS Working Papers from Athens University of Economics and Business

Abstract: This paper studies optimal fiscal policy, in the form of taxation and the allocation of tax revenues between infrastructure and environmental investment, in a general-equilibrium growth model with endogenous subjective discounting. A green spending reform, defined as a reallocation of government expenditures towards the environment, can procure a double dividend by raising growth and improving environmental conditions, although the environment does not impact the production technology. Also, endogenous Ramsey fiscal policy eliminates the possibility of an `environmental and economic poverty trap'. Contrary to the case of exogenous discounting, green spending reforms are the optimal response of the Ramsey government to a rise in the agents' environmental concerns.

Keywords: endogenous time preference; growth; environmental quality; second-best fiscal policy (search for similar items in EconPapers)
JEL-codes: D90 E21 E62 H31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-env, nep-fdg, nep-mac and nep-pbe
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Forthcoming in Macroeconomic Dynamics

Downloads: (external link)
http://wpa.deos.aueb.gr/docs/VellaDioikitopoulosKalyvitis_wp.pdf First version (application/pdf)

Related works:
Journal Article: GREEN SPENDING REFORMS, GROWTH, AND WELFARE WITH ENDOGENOUS SUBJECTIVE DISCOUNTING (2015) Downloads
Working Paper: Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting (2012) Downloads
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