The effects of government spending on deforestation due to agricultural land expansion and CO2 related emissions

•We model the effects of government spending on deforestation and CO2 emissions.•Government spending significantly increases deforestation in the short run.•Government spending significantly increases CO2 emissions in the short run.•Government spending has an insignificant impact on deforestation in the long run.•Government spending has an insignificant impact on CO2 emissions in the long run.

This paper examines the effect of changes in government spending level and composition on deforestation due to agricultural land expansion and related carbon dioxide emissions. Our theoretical model shows an unintended consequence from increased government spending and widening social safety nets in developing countries where agricultural land expansion significantly affects forest cover: there is an increase in deforestation and carbon dioxide emissions from land use change. Our empirical tests show that an increase in total government spending significantly increases forest land clearing for agricultural production in the short run leading to more carbon dioxide emissions. However, there is no long-run statistically significant effect on the steady-state forest cover and carbon dioxide emissions.