This article explores the principles that should guide efforts to raise finance for climate action in developing countries. The main conclusions are that, first, there is an important role for private finance, which would be facilitated by having pervasive and broadly uniform emissions pricing around the world. Second, public finance is warranted by a range of market � and policy � failures associated with climate change and its mitigation. Third, raising tax revenues may be preferable to borrowing as a means of raising public finance, although the economics is not clear-cut. Public finance theory advocates taxing �bads,� of which a number have escaped the tax base so far. But it discourages hypothecation of specific revenue streams to particular uses. Fourth, how much could or should be raised by the many specific proposals for finance for climate action in developing countries is often uncertain. So is how multiple schemes would interact. Several schemes could depress carbon prices. Earmarking is often assumed to be justified despite the arguments to the contrary. Fifth, two sets of proposals do particularly well judged against this analysis: (i) expanding the scale and scope of the CDM (ii) expanding the use of international financial institutions� balance sheets.

Raising finance to support developing country action: some economic considerations

https://eprints.exchange.isb.edu/448/1/Dulal_11111Delivering_Green_Economy_in_Asia.pdf

Delivering Green Economy in Asia: The Role of Fiscal Instruments

Fiscal policy effectiveness and the golden rule of public finance

Everywhere in the world, the need for fiscal stimulus has caused a severe deterioration of fiscal balances and raised the unavoidable question of debt sustainability. In the Euro area, the recent initiation of Excessive Deficit procedures by the European Commission against the countries with high deficits has heated this debate. Still, the Euro area needs a credible scheme of budgetary discipline that would allow fiscal authorities to reassure sovereign debt markets and to dissipate the reticence of the ECB in adopting a policy of quantitative easing. That would also facilitate the implementation of fiscal stimulus packages, which could open an exit away from the crisis. Such a scheme should be designed to enforce more discipline, but also more counter-cyclical fiscal policies.

Bad Weather for the Stability and Growth Pact

The European sovereign debt crisis has revived the debate about appropriate fiscal rules in the European Economic and Monetary Union. Whereas the Stability and Growth Pact and the Fiscal Compact make no distinction between public consumption and investment expenditure, the aim of the current paper is to analyze the implications of the adoption of the Golden rule in a monetary union, distinguishing between the two types of public expenditure. With the help of a macroeconomic model, we show that introducing a Golden rule and smoothing public investment expenditure would be welfare-improving, and mostly for countries where taxation rates and the productivity of public investment are highest, and for the most closed countries. It would also be the most beneficial for countries where the monetary transmission parameter, the propensity to consume, and the price elasticity of supply are weakest, whereas supply-side distortions are the strongest.

https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S1365100515000462

Advantages of following a golden rule in a monetary union

This paper shows that adopting a golden rule does not guarantee that public investment will improve economic outcomes. Our results suggest that only when the rate of return on public capital is greater than the cost of public borrowing, expanding public investment is bene…cial. Otherwise, both macroeconomic stability and debt sustainability are compromised. As such, we argue that policy-makers should prioritise the productivity of public investment rather than its level.

Mustafa Đsmihan

Papers

The Golden Rule of Public Finance: A Panacea?