The Political Economy of Green Stimulus Spending: Evidence from the Global Financial Crisis and the Covid-19 Crisis

The 2008 Global Financial Crisis and the 2020 Covid-19 pandemic triggered large economic stimulus packages in most countries. While aimed primarily at saving the domestic economy, these stimulus packages also offered governments opportunities for investing in decarbonization. Drawing on a new dataset covering 40 of the world’s largest economies’ stimulus spending during the two crises, this paper addresses two questions: 1) Did governments’ green stimulus allocation increase from the Global Financial Crisis to the Covid-19 downturn? 2) What country characteristics are associated with green stimulus spending in each crisis? Our empirical analysis reveals a (small) uptick in net green spending from 2008 to 2020 and that robust green economic interests are a significant predictor of green stimulus spending. Notably, our research uncovers a pattern of path dependency, with countries leading in green stimulus spending during the Global Financial Crisis maintaining this position also through the Covid-19 pandemic.