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Fiscal effects and the potential implications on economic growth of sea level rise impacts and coastal zone protection

Fiscal effects and the potential implications on economic growth of sea level rise impacts and coastal zone protection
Fiscal effects and the potential implications on economic growth of sea level rise impacts and coastal zone protection
Climate change impacts on coastal zones could be significant unless adaptation is undertaken. One particular macro-economic dimension of sea level rise (SLR) impacts that has received no attention so far is the potential stress of SLR impacts on public budgets. Adaptation will require increased public expenditure to protect assets at risk and could put additional stress on public budgets. We analyse the macroeconomic effects of SLR adaptation and impacts on public budgets. We include fiscal indicators in a climate change impact assessment focusing on SLR impacts and adaptation costs using a computable general equilibrium model extended with a detailed description of the public sector. Coastal protection expenditure is financed issuing government bonds, meaning that coastal adaptation places an additional burden on public budgets. SLR impacts are examined using several scenarios linked to three different Representative Concentration Pathways: 2.6, 4.5 and 8.5, and two Shared Socio-economic Pathways: SSP2 and SSP5. Future projections of direct damages of mean and extreme SLR and adaptation costs are generated by the Dynamic Interactive Vulnerability Assessment framework. Without adaptation, all world regions suffer a loss and public deficits increase respect to the reference scenario. Higher deficits imply higher government borrowing from household savings reducing available resources for private investments therefore decreasing capital accumulation and growth. Adaptation benefits result from two mechanisms: i) the avoided direct impacts, and ii) a reduced public deficit effect. This allows for an increased capital accumulation, suggesting that support to adaptation in deficit spending might trigger positive effects on public finance sustainability
0165-0009
1-20
Parrado, Ramiro
8bdfeb3f-0ce0-4efa-acc9-5ed531cedc96
Bosella, Francesco
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Delpiazzo, Elisa
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Hinkel, Jochen
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Lincke, Daniel
381b1e7b-b2a0-4f0e-ac69-0a6550104003
Brown, Sally
dd3c5852-78cc-435a-9846-4f3f540f2840
Parrado, Ramiro
8bdfeb3f-0ce0-4efa-acc9-5ed531cedc96
Bosella, Francesco
10064ec3-5ad8-4c7d-8962-d4559ff61c72
Delpiazzo, Elisa
7a76c7a6-4020-447a-9f46-19023a2a006b
Hinkel, Jochen
7f637de7-7e1c-4b04-aec6-d0cfdb72500b
Lincke, Daniel
381b1e7b-b2a0-4f0e-ac69-0a6550104003
Brown, Sally
dd3c5852-78cc-435a-9846-4f3f540f2840

Parrado, Ramiro, Bosella, Francesco, Delpiazzo, Elisa, Hinkel, Jochen, Lincke, Daniel and Brown, Sally (2020) Fiscal effects and the potential implications on economic growth of sea level rise impacts and coastal zone protection. Climatic Change, 1-20. (doi:10.1007/s10584-020-02664-y).

Record type: Article

Abstract

Climate change impacts on coastal zones could be significant unless adaptation is undertaken. One particular macro-economic dimension of sea level rise (SLR) impacts that has received no attention so far is the potential stress of SLR impacts on public budgets. Adaptation will require increased public expenditure to protect assets at risk and could put additional stress on public budgets. We analyse the macroeconomic effects of SLR adaptation and impacts on public budgets. We include fiscal indicators in a climate change impact assessment focusing on SLR impacts and adaptation costs using a computable general equilibrium model extended with a detailed description of the public sector. Coastal protection expenditure is financed issuing government bonds, meaning that coastal adaptation places an additional burden on public budgets. SLR impacts are examined using several scenarios linked to three different Representative Concentration Pathways: 2.6, 4.5 and 8.5, and two Shared Socio-economic Pathways: SSP2 and SSP5. Future projections of direct damages of mean and extreme SLR and adaptation costs are generated by the Dynamic Interactive Vulnerability Assessment framework. Without adaptation, all world regions suffer a loss and public deficits increase respect to the reference scenario. Higher deficits imply higher government borrowing from household savings reducing available resources for private investments therefore decreasing capital accumulation and growth. Adaptation benefits result from two mechanisms: i) the avoided direct impacts, and ii) a reduced public deficit effect. This allows for an increased capital accumulation, suggesting that support to adaptation in deficit spending might trigger positive effects on public finance sustainability

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Fiscal effects and the potential implications on economic growth of sea level rise impacts and coastal zone protection - Accepted Manuscript
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Accepted/In Press date: 20 January 2020
e-pub ahead of print date: 31 January 2020

Identifiers

Local EPrints ID: 437591
URI: http://eprints.soton.ac.uk/id/eprint/437591
ISSN: 0165-0009
PURE UUID: 64deb527-ba1c-42bd-b354-10d8815800a8
ORCID for Sally Brown: ORCID iD orcid.org/0000-0003-1185-1962

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Date deposited: 06 Feb 2020 17:31
Last modified: 31 Jan 2021 05:01

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Contributors

Author: Ramiro Parrado
Author: Francesco Bosella
Author: Elisa Delpiazzo
Author: Jochen Hinkel
Author: Daniel Lincke
Author: Sally Brown ORCID iD

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