The Macroeconomic Effects of a Green European Public Investment Fund - Taking Climate Change into Account

Sebastian Dullien () and Katja Rietzler ()
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Sebastian Dullien: Macroeconomic Policy Institute (IMK)
Katja Rietzler: Macroeconomic Policy Institute (IMK)

No 197-2025, IMK Policy Brief from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: This policy brief presents simulation results regarding the macroeconomic effects of a green EU public investment fund using the macroeconometric simulation model NiGEM. After briefly outlining the investment needs in the EU, we first present results using the standard version of NiGEM. We then extend the simulations in the main sections of the Policy Brief by taking climate change into account. By applying the climate version of NiGEM, we simulate various policy scenarios of the Network for Greening the Financial System (NGFS), both with and without an EU investment fund. Our results show considerable negative impacts on GDP, along with inflationary effects arising from CO2-taxation alone. Accounting for climate change and the corresponding long-term damage to GDP, however, our results show that not acting on climate change now causes far more severe damages in the future. A debt-financed EU investment fund would help – besides from faster promoting the greening of the European economies – by cushioning the negative transitory GDP effects in the next ten years, without risking debt sustainability. Finally, our results highlight the importance of cooperation such that climate change policies are implemented on a global level.

Keywords: EU investment fund; green investment; public investment; climate policy; climate change (search for similar items in EconPapers)
Pages: 23 pages
Date: 2025
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