Renewable vs non-renewable energy consumption as a driver of government deficit in net energy importing countries

Abstract

This paper is an empirical study on the relationship between renewable and nonrenewable energy sources on the central government budget deficit of 33 net energy importing energy countries. We employ a panel data framework with variables such as the budget deficit of the central government, the GDP per capita, the average official exchange rate, the real interest rate, renewable and non-renewable energy consumption for a data span from 2000 to 2012. Based on causality results from this study, there is a uni-directional effect from budget deficit towards renewable energy consumption and a bi-directional causal relationship between non-renewable energy consumption and the budget deficit. Results from our study are informative for policy making, since nowadays fiscal policy on energy consumption is worldwide disputed, for not being able to fully achieve its targets. Therefore, there is political willingness to re-design it and move it from energy subsidies and energy taxes into energy full cost pricing and other tools that aim to reach those social groups that are in more need.