 Mitigation or adaptation to climate change? The role of fiscal policyMouez Fodha and
Hiroaki Yamagami
Post-Print from HAL Abstract: This article examines the interplay between fiscal policy and investments in climate change mitigation and adaptation. Adaptation is funded by public revenues from taxation and public bonds, whereas households can invest in mitigation and receive subsidies. We show that adaptation and mitigation are substitutes or complements, depending on the level of economic development and fiscal policy decisions. If the capital stock is initially low, adaptation and mitigation are complements (resp. substitutes) if the mitigation subsidy is low (resp. high). When the government is in debt, we show that increasing public spending to finance adaptation and/or mitigation could be beneficial if the capital stock is high enough but could be detrimental for countries with low capital stock. Thus, we add a new argument to the debate on the optimal mix between adaptation and mitigation, namely fiscal policy and the funding schemes of these investments. Finally, we propose extensions that consider a level of adaptation proportional to pollution flow, debt financing of public investment, and public mitigation investment alongside private adaptation investment. Date: 2025-05 Published in Macroeconomic Dynamics, 2025, 29, ⟨10.1017/S1365100525000252⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-05162624 DOI: 10.1017/S1365100525000252 Access Statistics for this paper More papers in Post-Print from HAL |
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