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Is a €10 trillion European climate investment initative fiscally sustainable?

Is a €10 trillion European climate investment initative fiscally sustainable?

Wildauer, Rafael ORCID: 0000-0001-6395-6286, Leitch, Stuart and Kapeller, Jakob (2021) Is a €10 trillion European climate investment initative fiscally sustainable? [Working Paper] (Unpublished)

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Abstract

This policy study asks to what extent large-scale public investment efforts could be a viable tool to provide the necessary infrastructure to break Europe’s dependency on fossil fuel and carbon emissions more broadly. We estimate semi-structural VAR models for the EU27. These are used to study the impact of permanent as well as 5-year long public investment programmes. Three key findings emerge: First, government investment multipliers for the EU27 are large and range from 5.12 to 5.25. Second, debt-to-GDP ratios are likely to fall in response to the strong economic impulse generated by additional public investment spending. The study therefore classifies additional public investment spending in the EU27 as sustainable fiscal policy. Third, single country investment initiatives will likely lead to smaller economic expansions when compared to coordinated EU-wide investment, due to Europe’s strong intra-member state trade flows. A coordinated approach to fiscal policy is thus substantially more effective not only when it comes to delivering network-dependent infrastructure (rail, grid) but also with respect to the economic stimulus it creates.

Item Type: Working Paper
Faculty / School / Research Centre / Research Group: Faculty of Business
Faculty of Business > Department of Human Resources & Organisational Behaviour
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA)
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
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Last Modified: 11 Nov 2021 14:44
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
Selected for REF2021: None
URI: http://gala.gre.ac.uk/id/eprint/34344

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