BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 27/2015:
Could climate change affect government expenditures? Early evidence from the Russian regions
Simo Leppänen ()
, Laura Solanko ()
and Riitta Kosonen ()
Abstract: This paper explores the implications of climate change for
government expenditures. Using a rich sub-national dataset for Russia
covering 1995–2009, we estimate the impacts of changes in climatic
conditions through short-term variation and medium-term changes in average
regional temperatures and precipitation. We show a strong and robust
negative (but non-linear) relation between regional budget expenditures and
population-weighted temperature. The results indicate that an increase in
temperature results in a decrease in public expenditures and that the
magnitude of this effect diminishes the warmer the region. Further, our
results suggest that the benefits from warming accumulate and that
adaptation measures could help leverage those benefits. The estimated
decreases in regional government expenditure are, however, quite small. It
should be noted that our results are estimated for a scenario of mild
temperature increase (1–2 °C). Larger temperature increases are likely to
have dramatic consequences e.g. from loss of permafrost and methane release
that are impossible to predict with available historical data.
Keywords: climate change; public expenditures; adaptation; non-linearity; Russia; (follow links to similar papers)
JEL-Codes: C50; H72; P20; Q54; Q58; R59; (follow links to similar papers)
35 pages, September 22, 2015
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