GREEN SPENDING REFORMS, GROWTH, AND WELFARE WITH ENDOGENOUS SUBJECTIVE DISCOUNTING

Eugenia Vella, Evangelos Dioikitopoulos and Sarantis Kalyvitis

Macroeconomic Dynamics, 2015, vol. 19, issue 6, 1240-1260

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 toward 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.” In contrast 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.

Date: 2015
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Related works:
Working Paper: Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting (2013)
Working Paper: Green Spending Reforms, Growth and Welfare with Endogenous Subjective Discounting (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:19:y:2015:i:06:p:1240-1260_00

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