Fiscal Policies for a Sustainable Recovery and a Green Transformation

This paper compares the effectiveness of different fiscal policy instruments—carbon pricing, fiscal incentives for private green investments, and public green investment—in supporting a green recovery that is also fiscally sustainable. It argues th...

Full description

Bibliographic Details
Main Authors:	Catalano, Michele, Forni, Lorenzo
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2021
Subjects:	CLIMATE CHANGE GLOBAL WARMING GOVERNMENT POLICY INTERNATIONAL ECONOMICS FISCAL POLICY GREEN GROWTH
Online Access:	http://documents.worldbank.org/curated/undefined/499301633704126369/Fiscal-Policies-for-a-Sustainable-Recovery-and-a-Green-Transformation http://hdl.handle.net/10986/36385

id	okr-10986-36385
recordtype	oai_dc
spelling	okr-10986-363852021-10-15T05:10:31Z Fiscal Policies for a Sustainable Recovery and a Green Transformation Catalano, Michele Forni, Lorenzo CLIMATE CHANGE GLOBAL WARMING GOVERNMENT POLICY INTERNATIONAL ECONOMICS FISCAL POLICY GREEN GROWTH This paper compares the effectiveness of different fiscal policy instruments—carbon pricing, fiscal incentives for private green investments, and public green investment—in supporting a green recovery that is also fiscally sustainable. It argues that relying on carbon pricing or green investments is not sufficient to achieve the transition to a low-carbon economy in a timely and sustainable way. Carbon pricing alone would result in rapid and significant energy price increases that would be recessionary. Similarly, the level of public green investment needed to reach the Paris goals without recourse to carbon pricing would be so great that it would endanger debt sustainability. The conclusion from the simulations supports the view that a mix of supply-side policies (carbon pricing) and demand-side interventions (deficit financed green public investment) is necessary to achieve the Paris goals within the specified period and with a fiscally sustainable outcome. The paper also assesses the costs associated with transitioning to a low-carbon economy by geographic area. It finds that deficit financed public green investment by high-emitting countries only (typically advanced and emerging economies), would have positive growth impacts for those countries and enhance their fiscal sustainability, while also providing large positive spillovers to other countries, particularly to highly climate sensitive nations. In turn, the simulations show that wherever fiscally feasible it is in the best interest of all countries to increase public investment in the green economy. 2021-10-14T13:44:06Z 2021-10-14T13:44:06Z 2021-10 Working Paper http://documents.worldbank.org/curated/undefined/499301633704126369/Fiscal-Policies-for-a-Sustainable-Recovery-and-a-Green-Transformation http://hdl.handle.net/10986/36385 English Policy Research Working Paper;No. 9799 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	CLIMATE CHANGE GLOBAL WARMING GOVERNMENT POLICY INTERNATIONAL ECONOMICS FISCAL POLICY GREEN GROWTH
spellingShingle	CLIMATE CHANGE GLOBAL WARMING GOVERNMENT POLICY INTERNATIONAL ECONOMICS FISCAL POLICY GREEN GROWTH Catalano, Michele Forni, Lorenzo Fiscal Policies for a Sustainable Recovery and a Green Transformation
relation	Policy Research Working Paper;No. 9799
description	This paper compares the effectiveness of different fiscal policy instruments—carbon pricing, fiscal incentives for private green investments, and public green investment—in supporting a green recovery that is also fiscally sustainable. It argues that relying on carbon pricing or green investments is not sufficient to achieve the transition to a low-carbon economy in a timely and sustainable way. Carbon pricing alone would result in rapid and significant energy price increases that would be recessionary. Similarly, the level of public green investment needed to reach the Paris goals without recourse to carbon pricing would be so great that it would endanger debt sustainability. The conclusion from the simulations supports the view that a mix of supply-side policies (carbon pricing) and demand-side interventions (deficit financed green public investment) is necessary to achieve the Paris goals within the specified period and with a fiscally sustainable outcome. The paper also assesses the costs associated with transitioning to a low-carbon economy by geographic area. It finds that deficit financed public green investment by high-emitting countries only (typically advanced and emerging economies), would have positive growth impacts for those countries and enhance their fiscal sustainability, while also providing large positive spillovers to other countries, particularly to highly climate sensitive nations. In turn, the simulations show that wherever fiscally feasible it is in the best interest of all countries to increase public investment in the green economy.
format	Working Paper
author	Catalano, Michele Forni, Lorenzo
author_facet	Catalano, Michele Forni, Lorenzo
author_sort	Catalano, Michele
title	Fiscal Policies for a Sustainable Recovery and a Green Transformation
title_short	Fiscal Policies for a Sustainable Recovery and a Green Transformation
title_full	Fiscal Policies for a Sustainable Recovery and a Green Transformation
title_fullStr	Fiscal Policies for a Sustainable Recovery and a Green Transformation
title_full_unstemmed	Fiscal Policies for a Sustainable Recovery and a Green Transformation
title_sort	fiscal policies for a sustainable recovery and a green transformation
publisher	World Bank, Washington, DC
publishDate	2021
url	http://documents.worldbank.org/curated/undefined/499301633704126369/Fiscal-Policies-for-a-Sustainable-Recovery-and-a-Green-Transformation http://hdl.handle.net/10986/36385
_version_	1764485135134097408

Fiscal Policies for a Sustainable Recovery and a Green Transformation

Similar Items