The cyclicality of government environmental expenditure: political pressure in economic upturns and in recessions

ABSTRACT This is the first paper to explore the determinants of the cyclicality of government environmental protection expenditures. Attention focuses on political pressures to increase expenditure on public-sector programmes. These pressures change systematically over the economic cycle. In economic upturns, voters experience ‘fiscal illusion’. Governments can exercise discretion to increase environmental expenditures. In recessions, voters are far more aware. Vote maximising governments divert expenditures away from the environment, toward programmes that deliver more private-good benefits. Predictions are tested with reference to 28 OECD countries’ expenditures between 1992 and 2012. The cyclicality of expenditures depends on government sensitivity to systematic changes in voter awareness.