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General equilibrium impact of an energy-saving policy in the public sector

Abstract : We analyse a disregarded environmental policy instrument: a switch in government expenditure away from energy (or other natural resources) and toward a composite good which includes energy-saving expenditure. We first develop two variants of an analytical general equilibrium model. A composite good is produced with constant returns to scale, and energy is imported or produced domestically with diminishing returns, yielding a differential rent to its owners. The government purchases energy and composite goods from private firms. Such a policy unambiguously increases employment. It also raises private consumption and welfare under two conditions: (i) it is not too costly and (ii) the initial share of the resource is smaller in public spending than in private consumption, or the difference is small enough. We then run numerically a model featuring both importation and domestic production of energy (oil, gas and electricity), for the OECD as a whole. Simulations show that employment, welfare and private consumption rise. We provide magnitudes for different parameter values.
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Meriem Hamdi-Cherif, Philippe Quirion. General equilibrium impact of an energy-saving policy in the public sector. Environmental and Resource Economics, Springer, 2007, 38 (2), pp.245-258. ⟨10.1007/s10640-006-9075-2⟩. ⟨halshs-00639321⟩

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