Budget consolidation through environmental protection: Approaches to reducing new borrowing through environmentally effective policy instruments and measures
Governments face enormous challenges when trying to achieve long-term fiscal and environmental sustainability. This research project aims to demonstrate how these two sustainability dimensions can be integrated through concrete policy strategies. Which measures allow one to design environmental policy in a way that supports sustainable fiscal policy and vice versa? How can conflict between environmental and consolidation objectives be avoided? Firstly, based upon an analysis of current and existing research, the measures that are expected to yield significant synergies between budget consolidation and environmental protection will be identified. Theoretical underpinnings and a first estimation concerning their likely quantitative impacts will be provided for a wide range of such possible strategies. Secondly, the most promising strategies will be selected and evaluated in detail by analysing their medium- and long-term environmental, fiscal and macroeconomic consequences. Two simulation models will be used for this quantitative modeling exercise. A “sustainability model” serves to assess the fiscal results of the policy measures, while an extended input-output-model addresses their macroeconomic and environmental consequences. Both models will be linked to allow for an integrated analysis.