The effects of fiscal policy on CO2 emissions: Evidence from the U.S.A

• Published in: Energy policy Vol. 88; pp. 317 - 328
• Main Authors: Halkos, George E., Paizanos, Epameinondas Α.
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01-01-2016; Elsevier Science Ltd
• Subjects: Air pollution; Carbon dioxide; CO2 emissions; Consumption; Deficit financing; Emissions; Energy consumption; Environmental policy; Expenditures; Fiscal policy; Government expenditure functions; Implementation; Pollutants; Pollution; Pollution effects; Pollution sources; Production; Public debt; Social classes; Studies; Tax cuts; Taxation; United States > US; E62; Fiscal policy; Q56; Q58; CO2 emissions; Government expenditure functions; Q53
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2015.10.035

This paper examines the effects of fiscal policy on CO2 emissions using Vector Autoregressions on U.S. quarterly data from 1973 to 2013. In particular, we analyze the short- and mid-term interactions between fiscal policy and emissions by using sign restrictions to identify the policy shocks. We construct the impulse responses to linear combinations of fiscal shocks, corresponding to the scenarios of deficit-financed spending and deficit-financed tax-cuts. To consider possible variations of the effect of fiscal policy according to the sources of pollution, we distinguish between production- and consumption- generated CO2 emissions. The results point out that the implementation of expansionary fiscal spending provides an alleviating effect on emissions from both sources of the pollutant, whereas deficit-financed tax-cuts are associated with an increase on consumption-generated CO2 emissions. The exact pattern of the effects depends on the source of emissions, the scenario of fiscal policy that is implemented and the functional class of government expenditure being increased.
•We investigate the effects of fiscal policy on CO2 emissions using VAR methods.•Spending expansions reduce production- and consumption- generated CO2 emissions.•This alleviating effect is greater when increasing certain expenditure categories.•Deficit-financed tax-cuts increase consumption-generated CO2 emissions.•Unique factors in U.S. may limit applicability of findings to other jurisdictions.