Nexus between fiscal imbalance and emissions reduction: New evidence from developing economies

https://doi.org/10.1016/j.jenvman.2021.113360Get rights and content

Highlights

  • To assess the impact of fiscal policy and the impact on environmental degradation within the scope of developing countries.

  • Consequently, a dual approach model is employed to assess the motivation of adopting an environmentally sustainable model.

  • We find that fiscal imbalance and debt levels are the main drivers of degradation based on consumption and intensity.

  • These factors attribute a slower progress towards the inflection point in the proposed environmental Kuznets curve.

Abstract

The triple components of energy consumption, carbon dioxide emissions, and economic expansion are important to achieving sustained economic activity and sound ecological advancement. This study aims to estimate the impact of wide-ranging parameters on environmental circumstances in South Asian countries. This analysis required two approaches: 1)quantile autoregressive distributed lag (QARDL) as an econometric model, and 2) data envelopment analysis (DEA) non-parametric comparable composite index to examine concurrently South Asian nations' data for the 2000–2018 period. The underscored category of the parameters were grouped into four key indices, namely financial, fiscal, human, and energy. The DEA's mathematical composite findings reveal varied circumstances regarding environmental self-maintenance in South Asian nations. India and Pakistan are doing quite well; Afghanistan is abysmal. In addition, the QARDL approach findings reveal that energy use and fiscal indicators abate pollution. Furthermore, the correlation between fiscal decentralization and ecological attributes is strengthened by the excellent level of institutions and human capital progress. There is a unidirectional impact emanating from fiscal devolution, gross domestic product, human capital, eco-innovation, and institutional excellence on carbon dioxide pollution, although different from the other correlations obtained.

Introduction

Humans' unabated fossil fuel consumption over centuries and increased land use, emitting gas and pastures have emitted greenhouse gases such as methane, carbon dioxide (CO2), nitrous oxide and cause unintended ramifications. This culminated in 400 parts per million (ppm) air concentration of CO2 over one million years ago, causing climate change with its existential threat. The world's mean emission rate of CO2 remained stable between 2014 and 2017. Nevertheless, in 2018 and 2019, emissions grew by 2.7 % and 0.6 %, respectively (Global Carbon Project, 2017). Given the current consequences of a warming planet, the 2015 Paris Agreement galvanized global efforts to cut greenhouse gas emissions and reduce global temperature warming by 2 °C (°C). Present scenarios show the warming frequency is around 3.1 °C–3.7 °C. Therefore, the Paris Agreement-aligned nations aim to limit global temperatures beyond 2 °C (Taghizadeh-Hesary et al., 2021c).

It is imperative to note that fiscal devolution is a reasonable and cost-effective means to abating CO2 pollution. The literature contends that fiscal devolution can be a set-off race to the top between indigenous authorities by instituting lofty ecological benchmarks to generate eco-benign ecology, reducing pollution levels (Taghizadeh-Hesary et al., 2021a). Indeed, recent years have witnessed increased federal authority worldwide, subcontracting tasks regarding ecological policy formulation and enforcement. This practice is common among the Organization for Economic Cooperation and Development (OECD) nations. Nonetheless, in recent years, a distinct aspect of fiscal devolution on CO2 pollution has ignited increasing concern (Chen and Chang, 2020). Proponents of this ideology assert that fiscal devolution might result in the “run to the bottom” scenario. Indigenous authorities will water down their ecological requirements to attract the private sector to their localities, increasing pollution levels. This inconsistent finding has triggered researchers’ curiosity concerning the correlation between fiscal devolution and CO2 pollution. Conversely, bearing in mind the distant past narrative of fiscal devolution, a handful of studies has examined the effects of fiscal devolution on CO2 for OECD nations. Regarding Taghizadeh-Hesary et al. (2020), the various findings are attributable to the establishment of nations and their human resource parameters. Consequently, it is exciting to investigate whether fiscal devolution implicitly impacts CO2 releases via the establishment of nations and human resources. Nonetheless, in present times, the function of state establishments has not been methodically investigated to ascertain this correlation (Yang et al., 2020). Past research has more or less ignored the existence of CD and the slope differences that might appear in longitudinal data.

The deployment of negative emissions technologies, grid modernization, carbon capture and storage, and electricity generation from RES has had wide-ranging ecological consequences (Nursini and Tawakkal, 2019). Thus, deprived of an organizational setup and appropriate public expenditure plans, the race to achieve net-zero emissions, or cut emissions drastically, might be an elusive task. Fiscal devolution is an instrument applied to advance government discharges pf its services via the mobilization and allotment of proceeds from the government confers between the main government and indigenous authorities (Taghizadeh-Hesary et al., 2021b). There is a firm correlation between fiscal devolution and CO2 abatement. For this reason, to attain a less carbon-intensive goal and energy-efficient fiscal spending, it is important to elucidate the tasks required at various stages of authorities to do this. Conversely, Cheng et al. (2020) contended that fiscal devolution depreciates ecological quality. There is also a likelihood of ecological destruction among localities due to free-rider disorder, creating the need for additional budgetary allotments to the grassroots level to fight environmental degradation. The crux of the correlation between fiscal policy and CO2 emissions is ambiguous and requires additional investigation (Zhang et al., 2021; Agyekum et al., 2021; Chien et al., 2021; Li et al., 2021; Iqbal et al., 2021).

As a result, this research aims to estimate and authenticate the effect of important parameters grouped into four main indices (i.e., vertical fiscal imbalance, fiscal devolution, human capital, and energy) concerning the ecological circumstances of South Asian nations during the 2000–2018 period. We aim to move past research shortfalls and authenticate ways that fiscal devolution influences CO2 emissions by applying an even longitudinal dataset for South Asian nations. To further examine the affecting instruments, the study delves into how establishments and the human resources of the study countries interacted to influence fiscal devolution on CO2 emissions. For a reason previously mentioned, the research applies the QARDL to an econometric model and the DEA-comparable composite as in management research to examine this issue from different perspectives. Therefore, this study's research objective is to fill the void in the scholarly works on greenhouse gas pollution and EG to formulate the trajectory toward a green economic system. The comprehension of the individual and cumulative impact of the index can improve the capability of policy formulators understanding the cumulative effects of finance and energy on a more significant level and individual financiers in undertaking important decisions to decrease the risks of carbon pollution. The findings will be helpful for policy formulators concerning the execution of pollution abatement policies without stifling economic activity. The findings also serve as a blueprint for policy execution in mitigating the adverse impact of pollution. This is one way for stakeholders to redistribute earnings from emissions reductions approaches such as emission trading schemes (ETS) or carbon taxes that will benefit society.

Section snippets

Literature review

Several studies believe that pollution abatement policies, particularly, putting a cost on carbon through taxes and ETS, are one of the most potent and cheapest means to abate pollution. In addition, several scholars have corroborated the claim that pragmatic regulations aimed at cutting pollution will achieve the goals of cutting pollution and promoting renewable energy (RE) generation but will decrease conventional fuel consumption. Thus, emissions abatement tends to harm foreign trade and EG

System of indicators

This analysis formulated financial indicators, human capital indicators, fiscal indicators, energy indicators, and environmental indicators to ascertain the connections between greenhouse gases and macroeconomic parameters (L. Sun et al., 2020b; H. Sun et al., 2020; L. Sun et al., 2020a). Table 1 presents parameter descriptions for each indicator. As a result, the WDI, South Asia and relevant ministries, and the International Monetary Fund database between 2000 and 2018. The findings were

Analysis based on the fiscal decentralization composite index

The devolution of fiscal measures is a wide-ranging domain approach that comprises a framework to diffuse spending and revenue mobilization tasks to the bottom of the local leadership. Nonetheless, considering fiscal devolution and governmental opposition, ecological requirements have an oppressive impact on enterprises’ eco-invention, which shows that the rationality of the pollution hypothesis is greatly reliant on the ecosystems of the establishments where ecological processes function.

From

Conclusion and policy implications

The paper endeavors to investigate greenhouse gas pollution's correlation to various indices, namely, a vertical fiscal disproportionate indicator, a fiscal devolution indicator, a human resource indicator, and an energy indicator. A longitudinal dataset between 2000 and 2018 of South Asian nations was used for estimations by applying a DEA-comparable statistical composite index, quantile longitudinal estimation, and ordinary least squares. The findings are as follows:

  • I.

    The findings reveal a

Author contribution

Dongyang Zhang and Hafezali Iqbal Hussain: Conceptualization, Methodology Dongyang Zhang: Data curation, Writing- Original draft preparation. Hafezali Iqbal Hussain: Investigation, Validation, Writing- Reviewing and Editing.

Data availability statement

Data available in a publicly accessible repository that does not issue DOIs Publicly available datasets were analyzed in this study. This data can be found here: https://databank.worldbank.org/source/world-development-indicators, assessed on January 1, 2021.

Funding

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgments

The authors would like to thank Enago (www.enago.com) for the English language review.

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