Abstract
This paper explores an almost untouched topic in the fast-growing climate econometrics literature—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. In mild warming scenarios, according to our estimates Russia saves roughly USD 3–4 billion in regional government expenditures between 2000 and the 2020s without undertaking adaptation measures, depending on the scenario. It should be noted that our results are estimated for a scenario of mild temperature increase (1–2 ^{circ }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.
Highlights
There is a strong consensus that the earth is experiencing man-made climate change caused by such factors as accumulation of greenhouse gases in the atmosphere and black carbon deposition on land and sea surfaces
While the results become less trustworthy over a longer time horizon due to the scantiness of observations, we find evidence suggesting that weather benefits accumulate, i.e. warming tends to have a larger medium-term effect on decreasing regional government expenditures than in the short term
Underage and Overage are positively associated with expenditures, which is intuitive in the sense that education and healthcare are mostly sub-national responsibilities in Russia
Summary
There is a strong consensus that the earth is experiencing man-made climate change caused by such factors as accumulation of greenhouse gases in the atmosphere and black carbon deposition on land and sea surfaces. Climate change is likely to have major impacts on natural and human systems on all continents in coming years, eventually reflecting into countries’ economies and on their public finances. The academic discussion around fiscal impacts of these huge changes so far is largely policy-based and focused on two large topics: mitigation costs like emission taxes and direct budgetary effects of extreme weather events that are likely to become increasingly intense and frequent due to global warming (See Jones et al 2012 for a survey). Even modest and gradual climate disruption, may affect public finances through e.g. shifts in economic structures, weather-induced changes in public health, revised heating/cooling expenditures and adaptation costs related to public infrastructure. Tol (2005) argues that national governments and international organizations need not participate in climate change adaptation efforts due to the local nature of the problem
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