Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322522 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11960
Publisher: 
CESifo GmbH, Munich
Abstract: 
A Bayesian factor-augmented interacted vector autoregression framework purified of expectations is employed to analyze how government spending shocks have impacted CO2 emissions in the United States from the 1980s to the pre-pandemic period. Consumption-generated emissions are found to have generally risen following fiscal expansions, although their elasticity to government spending has declined substantially over time–with the five-year elasticity dropping from about 0.5 in the early 1980s to 0.1 by 2019. In contrast, positive government spending shocks increased production-generated emissions in the early 1980s–with a five-year elasticity near 0.4–but reversed course by the 1990s, eventually reaching an elasticity of –0.5 by the end of the sample. Examination of time-varying interaction variables suggests that environmental regulation, tertiarization, and a larger share of spending on public goods can mitigate–or even reverse–the emissions growth associated with economic expansions driven by government spending. Furthermore, government consumption, rather than investment, is chiefly responsible for these shifts in emissions elasticities.
Subjects: 
government spending
fiscal policy
CO2 emissions
JEL: 
C32
C38
E62
Q54
Q58
Document Type: 
Working Paper
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