Could Climate Change Affect Government Expenditures? Early Evidence from the Russian Regions

35 Pages Posted: 29 Oct 2015 Last revised: 12 Jan 2019

See all articles by Simo Leppänen

Simo Leppänen

Aalto University, Center for Markets in Transition; Independent

Laura Solanko

Bank of Finland - Institute for Economies in Transition (BOFIT)

Riitta Kosonen

Aalto University - School of Business

Date Written: September 22, 2015

Abstract

This paper explores 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. It should be noted that our results are estimated for a scenario of mild temperature increase (1–2 °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.

Keywords: climate change, public expenditures, adaptation, non-linearity, Russia

JEL Classification: Q54, Q58, H72, R59, C50, P20

Suggested Citation

Leppänen, Simo and Solanko, Laura and Kosonen, Riitta, Could Climate Change Affect Government Expenditures? Early Evidence from the Russian Regions (September 22, 2015). Available at SSRN: https://ssrn.com/abstract=2683309

Simo Leppänen (Contact Author)

Aalto University, Center for Markets in Transition ( email )

Lapuankatu 2
P.O. Box 21230
Helsinki, FI-00100
Finland

Independent ( email )

Laura Solanko

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/solanko_laura/

Riitta Kosonen

Aalto University - School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland

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