Public Environmental Expenditures in Estonia During 1995-2011

The purpose of this paper is to assess the impact of earmarking on central government environment protection expenditure. Since central government spending for the environment relies on earmarked revenues, which is not the case of the local government, it is expected that central government expenditure is to a lesser degree affected by macroeconomic developments. The analysis indicates that this is the case because correlation between GDP change and the change in central government expenditure for environment protection is smaller than that of the local government. It is also found that increasing revenues from earmarked environmental charges have contributed to growing expenditure. However, the analysis also suggests that the main driver of this growth is the expansion is EU funds. Reliance on EU expenditure was further reinforced by changes in earmarking rules in 2008-2009.