## Time-Varying Impacts of Government Spending on CO2 Emissions

_IMF Working Papers, July 4, 2025_

## Source details

**Canonical URL:** [Time-Varying Impacts of Government Spending on CO2 Emissions](https://www.imf.org/en/publications/wp/issues/2025/07/01/time-varying-impacts-of-government-spending-on-co2-emissions-568002)

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## Bibliographic details
- Authors: Stefano Di Bucchianico, Mario di Serio, Matteo Fragetta, Giovanni Melina
- Published: July 4, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229013772.001

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### Methodology
- 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.

### Key findings on emissions elasticities
- Consumption-generated emissions:
  - Generally rose following fiscal expansions.
  - The five-year elasticity to government spending declined from about 0.5 in the early 1980s to 0.1 by 2019.
- Production-generated emissions:
  - Increased in the early 1980s following positive government spending shocks, with a five-year elasticity near 0.4.
  - Reversed course by the 1990s, eventually reaching an elasticity of –0.5 by the end of the sample.

### Drivers and interaction variables
- Time-varying interaction variables examined suggest the following can mitigate—or even reverse—the emissions growth associated with economic expansions driven by government spending:
  - Environmental regulation
  - Tertiarization
  - A larger share of spending on public goods
- Government consumption, rather than investment, is chiefly responsible for the shifts observed in emissions elasticities.

### Subject areas and keywords
- Subject: Environment, Environmental policy, Expenditure, Government consumption, Greenhouse gas emissions, National accounts, Public investment spending
- Keywords: CO2 emissions, consumption-generated emission, elasticity to government spending, emission elasticity, Environmental policy, fiscal policy, Global, Government consumption, government spending, government spending shock, Greenhouse gas emissions, IMF working paper No. 25/132, Public investment spending

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2025/07/01/time-varying-impacts-of-government-spending-on-co2-emissions-568002_