This seminar is based on a work co-authored by Elisa Delpiazzo, Gabriele Standardi and Ramiro Parrado.

In a background of a financial crisis along with high levels of indebtedness and aging population, high unemployment levels and the need for fiscal outlays for unemployment compensation or welfare benefits, climate change policies seem to appear as something which would not be regarded as an urgent policy also in many European countries. In fact, in a situation where public budgets are overstretched due to economic crisis, there is an increasing need to understand the implications of climate change impacts, climate change mitigation and adaptation policies on the fiscal side.

This is particularly true for those countries which experienced growing levels of deficit and debt in the last decades, and especially for adaptation that typically implies an increase in expenditure coming from the public sector. In this context, cuts in public expenses to reduce the gap between revenues and expenditures might appear to be the winning strategy, however there are also impacts to cope with whose timing and magnitude are uncertain as uncertain are their fiscal effects.

We tackle these issues using a Computable General Equilibrium model (ICES), enriched with a more realistic description of the government sector both on the revenue and the expenditure side. This comparative static analysis considers the budgetary effects of Sea Level Rise (SLR). We consider  two different adaptation options. The first scenario is similar to a case of autonomous adaptation where agents automatically adjust to price signals in the economy.

The second scenario is analogous to a planned adaptation strategy where the burden of adaptation falls only on the government. In this framework we sketch a simple adaptation module, assuming adaptation costs are borne by the government, which boosts its recurrent expenditures in the infrastructure sector, since adaptation to SLR would mainly consist of protective infrastructures.