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The financial crisis and fiscal consolidation in green budgets

image of The financial crisis and fiscal consolidation in green budgets

This project adds insight into the potential contribution to fiscal consolidation from environmental tax and subsidy reforms, i.e. strengthening public budgets while at the same time improving economic efficiency and the environment. The report contributes with own calculations for potential revenues from environmental taxes and discusses the financial crisis and environmental tax policy responses in Iceland, Estonia and Ireland as case studies. The analysis has been carried out during the period July 2012 – December 2012 by Vista Analysis AS, Norway, Reykjavik University, Iceland and PRAXIS Center for Policy Studies, Estonia. The project was commissioned by the Nordic Council of Ministers.

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The financial crisis

The start of the global financial and economic crisis is sometimes dated to August 9, 2007, when the French bank BNP Paribas suspended the calculation of the value of three hedge funds. The bursting of the U.S. housing bubble caused the values of securities tied to real estate pricing to plummet, and spread out to financial institutions globally. This first stage of the crisis was at heart a private debt crisis: Excessive private debts were revealed along with a lack of oversight over debt. Once the crisis emerged banks and other financing institutions lost confidence in private sector bonds (papers that finance private sector debt) and financing institutions lost confidence in each other. The private debt crisis initiated failures of businesses, declines in consumer wealth, and a downturn in economic activity that lead to the global recession from 2008.

English

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