The green transition and public finances: Balancing climate mitigation and fiscal Sustainability by Stéphane Dees, Caterina Seghini published by VOXEU (8/2024).
The need to mitigate climate change has never been more urgent. Governments play a critical role in the green transition, through green public investment, subsidies, and implementing carbon pricing policies. This column uses a macro-climate model to examine the interplay between mitigation policies and fiscal sustainability considerations. It highlights a key trade-off between limiting transition economic costs and maintaining public debt sustainability associated with different policies. It finds that an optimal policy mix features immediate involvements of the private sector and a growing contribution from the public sector over time.
