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...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| 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 |
| Summary: | 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. |
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