The impact of government expenditure on the environment: An empirical investigation

This paper examines the impact of government spending on the environment using a panel of 77 countries for the time period 1980-2000. We estimate both the direct effect of government spending on pollution and the indirect effect which operates through government spending impact on per capita income and the subsequent effect of income level on pollution. In order to take into account the dynamic nature of the relationships examined, appropriate econometric methods are used. For both sulfur dioxide and carbon dioxide, government spending is estimated to have a negative direct impact on per capita emissions. The indirect effect on sulfur dioxide is found to be negative for low levels of income and then becomes positive as income level increases, while it remains negative for carbon dioxide for the whole income range of the sample. The resultant total effects follow the patterns of the indirect effects, which dominate their respective direct ones for each pollutant. Policy implications, occurring from the paper’s results, range according to the level of income of the considered countries.