Policy Brief by Rafael Wildauer and Stuart Leitch
This is the fourth policy study of the research project entitled “A fiscally sustainable public investment initiative in Europe to prevent climate collapse”. It summarises the most important research findings on the EU’s investment needs to limit global warming and presents two funding options to raise the revenues for the direct provision of green infrastructure.
Summary
This policy brief discusses the European Union’s investment needs to limit global warming to 1.5°C above pre-industrial levels as well as two funding options to raise the revenues for the direct provision of green infrastructure. The policy brief finds that the European Commission’s modelling of required investment needs is overly optimistic as the EU faces an investment gap of €11,670 to €16,320 billion between 2020 and 2050.
A progressive European wealth tax and the issuing of government bonds for a public investment initiative are two policy options to close this gap. A progressive European wealth tax has the potential to raise revenues of between €164 billion and €357 billion annually, while not increasing inflationary and Covid-related pressures on low- and middle-income households. A wealth tax can also reduce extreme levels of wealth inequality and build administrative capacities to fight corruption and organised crime. The second policy option of issuing bonds can raise revenues instantly and will generate a significant economic impulse. This policy brief estimates a long-run investment multiplier of 5 for a co-ordinated fiscal expansion at the EU level. The magnitude of the multiplier also means that public finances will improve in the long term.