IMF Working Papers

Time-Varying Impacts of Government Spending on CO2 Emissions

By Stefano Di Bucchianico, Mario di Serio, Matteo Fragetta, Giovanni Melina

July 4, 2025

Download PDF More Formats on IMF eLibrary Order a Print Copy
More formats on IMF eLibrary Order a Print Copy

Preview Citation

Format: Chicago

Stefano Di Bucchianico, Mario di Serio, Matteo Fragetta, and Giovanni Melina. "Time-Varying Impacts of Government Spending on CO2 Emissions", IMF Working Papers 2025, 132 (2025), accessed July 6, 2025, https://doi.org/10.5089/9798229013772.001

Export Citation

  • ProCite
  • RefWorks
  • Reference Manager
  • BibTex
  • Zotero
  • EndNote

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Environment, Expenditure, Greenhouse gas emissions

Keywords: CO2 emissions, Fiscal policy, Government spending, Greenhouse gas emissions

Publication Details

You May Also Be Interested In...

Strategies for Africa's Climate Resilience: Trade and Practices

July 4, 2025

A Macroeconomic Framework for Long-Term Resilience and Growth

July 4, 2025

Denmark: 2025 Article IV Consultation-Press Release; and Staff Report

July 4, 2025

Austria: Selected Issues

July 3, 2025