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Cyclicality of Government Environmental Protection Expenditure: An Empirical Analysis
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2024 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The relationship between government spending and business cycles is complex and subject to debate, especially when evaluating the ideal response of government spending to business cycle fluctuations. Whilst the two main paradigms of Keynesian and neoclassical economics state that government spending should be countercyclical or not cyclical, respectively, they agree that most procyclical fiscal policies are inadequate. Nevertheless, prior research shows that procyclical fiscal policy is more common than previously assumed and especially the norm in developing countries. Existing studies have primarily focused on government spending in general, but a research gap exists for government environmental protection expenditure, which is addressed in this thesis using an overarching dataset of 29 countries with observations extending from 1996 to 2021. The main hypotheses investigated are that for a model without lags, procyclicality of environmental protection spending is present in both economic up- and downturns, and that, in a model with lags, there is a significant positive relationship between environmental protection expenditure and the lagged output gap in booms and recessions. Although no direct cyclicality of environmental protection expenditure can be proven through fixed-effects estimation, both subsamples show a significant positive coefficient for the lagged positive output gap which holds up to robustness checks. This suggests that economic upturns have a (lagged) positive relationship with environmental expenditure. One possible explanation for this is the creation of government budgets in advance and increased optimism amongst decision-makers during economic upturns which may affect environmental protection spending. Whilst the presented methods could not establish causality, the acquired results may motivate further research in the area of environmental expenditure cyclicality in the future.

Place, publisher, year, edition, pages
2024.
National Category
Economics
Identifiers
URN: urn:nbn:se:umu:diva-226904OAI: oai:DiVA.org:umu-226904DiVA, id: diva2:1875733
Available from: 2024-06-24 Created: 2024-06-24 Last updated: 2024-06-24Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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