Output and welfare effect of green credit in China: Evidence from an estimated DSGE model *

In China, green credit aims to guide the flow of credit funds by regulating the quantity and price of credit, so as to support the development of green industries and curb the emission behavior of polluting enterprises. Based on the behavior of microeconomic entities we construct a Dynamic Stochastic Genernal Equilibrium (DSGE) model to analyze the output and welfare effect of green credit in China. Specifically, the incentive green credit is taken as an example to carry out an empirical study, and we further quantitatively measure the output and welfare effect of green credit under different environmental regulations. We find that both price-based and quantity-based green credit have obvious output, environment, health and utility welfare effect, which is conducive to the green upgrading of industrial structure and can achieve a win-win situation of output and environment in China. However, there are some differences in transmission mechanism and utility welfare. In addition, in the short term, the environmental tax regulation inhibits the economic expansion effect of green credit, and in the long term, this inhibitory effect gradually disappears. The DSGE comprehensive evaluation framework constructed in this paper expands the application scope of DSGE model, and provides a quantitative theoretical model for the mechanism analysis of China's green credit policy and similar policies. Furthermore this study provides theoretical and quantitative basis for the formulation of green credit policies and the improvement of macro-control policies in China. (c) 2021 Elsevier Ltd. All rights reserved.

Automated summary

Green credit in China has obvious effects on output, environment, health, and welfare, promoting the green upgrading of industrial structure and achieving a win-win situation for output and environment. However, in the short term, environmental tax regulations may inhibit the economic expansion effect of green credit, which gradually diminishes in the long term.