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Can public debt mitigate environmental debt? Theory and empirical evidence

Mohamed Boly, Jean-Louis Combes, Maxime Menuet, Alexandru Minea, Pascale Motel Combes () and Patrick Villieu

Energy Economics, 2022, vol. 111, issue C

Abstract: This paper investigates the relationship between public debt and environmental debt—reflecting CO2 carbon concentration. First, using an endogenous growth model in which pollution abatement spending can be financed by public debt, we show that public debt and environmental debt are complementary in the long run and usually substitutes in the short run. Second, these predictions are empirically confirmed: in particular, a 1% increase in the public debt ratio leads to an increase of 0.74% in cumulative CO2 per capita in the long run. Our findings emphasize the difficulty of defining policies that jointly serve both the economic (fiscal) and the environmental goals, due to the short- and long-run conflicting environmental effects of policies that either reduce or do not constrain public debt.

Keywords: Environmental debt; Public debt; CO2 emissions; Panel data; Welfare (search for similar items in EconPapers)
JEL-codes: E62 H63 O44 Q52 Q58 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Can Public Debt Mitigate Environmental Debt? Theory and Empirical Evidence (2022)
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DOI: 10.1016/j.eneco.2022.105895

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