The effects of governmental spending on deforestation and CO2 related emissions.
This paper examines the effect of changes in government spending level and composition on deforestation and related carbon dioxide emissions. Our theoretical model shows an unintended consequence from increased government spending and widening social safety nets during times of recession: there is an increase in deforestation and carbon dioxide emissions from land use change. Our empirical tests show that an increase in total government spending significantly increases forest land clearing for agricultural production in the short run leading to more carbon dioxide emissions. However, there is no long-run statistically significant effect on the steady-state forest cover and carbon dioxide emissions.