The Fiscal Impact of Extreme Weather and Climate Events Evidence for EU Countries

Nicola Gagliardi, Pedro Arévalo and Stéphanie Pamies

No 168, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: Assessing fiscal risks from climate change is a critical and challenging issue. In this paper, we analyse the fiscal implications of acute physical risks from climate change, as we aim to capture debt sustainability risks associated with extreme weather and climate events. This is done by providing stylised stress tests for selected EU Member States, designed as shocks to public finances and growth. To do so, we rely on a comparative approach. Climate-related aggravating factors to debt sustainability are captured via a global natural disaster database and available forward-looking estimates of economic losses from different climate events, projected under different global warming pathways. Our results highlight that extreme weather and climate events may pose risks to debt sustainability, although remaining manageable across the EU under standard global warming scenarios. Our findings emphasise the relevance of implementing large-scale, rapid, and immediate climate mitigation and adaptation measures to dampen the adverse economic and fiscal impacts of potentially more frequent and intense extreme events, thereby reducing countries’ exposure, their vulnerability, and debt sustainability risks.

JEL-codes: H12 H63 Q54 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2022-07
New Economics Papers: this item is included in nep-eec and nep-env
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:168

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