Green budget tagging makes an entire country's economy more productive just by changing how money is labeled.
April 24, 2026
Original Paper
Climate Change, Green Budget and Economic Sustainable Development
SSRN · 6624792
The Takeaway
Green budget tagging causally increases total factor productivity across 163 different economies. This effect is not just about the actual environmental impact, but about the signal it sends to the market. By categorizing spending, governments reduce information asymmetry and show a long-term commitment to a specific economic direction. Investors respond to this clarity by allocating capital more efficiently, which drives up overall national productivity. This suggests that the way we categorize and communicate public spending is just as important as the amount of money we actually spend.
From the abstract
Green budget tagging has emerged as a central fiscal governance reform, yet its causal macroeconomic impact remains unidentified. We provide the first causal evaluation of green budget tagging on total factor productivity (TFP), exploiting staggered cross-country adoption as a quasi-natural experiment. Applying the doubly robust difference-in-differences estimator of Callaway and Sant'Anna (2021) to a balanced panel of 163 economies over 2005–2022, we find that green budget adoption generat