THE MACROECONOMIC EFFECTS OF A GREEN EUROPEAN PUBLIC INVESTMENT FUND: TAKING CLIMATE CHANGE INTO ACCOUNT

Abstract We present simulation results of the macroeconomic effects of a green European Union (EU) public investment fund for the euro area using the macroeconometric simulation model National Institute Global Econometric Model. Our results show considerable negative gross domestic product (GDP) effects together with inflationary effects from CO 2 taxation alone. Accounting for climate change and the corresponding long-term damage to GDP, however, our results show that not acting on climate change now causes far more severe damages in the future. An EU investment fund would significantly cushion the negative transitory GDP effects. Finally, our results highlight the importance of cooperation such that climate change policies are implemented on a global level.