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Revisiting the nexus between fiscal decentralization and environment: evidence from fiscally decentralized economies

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Abstract

Fiscal decentralization is a topic of great importance, especially in the context of environmental sustainability. Numerous research studies have been conducted on fiscal decentralization providing conflicting results, and therefore, the current study fills the gap by examining the effect of fiscal decentralization on environmental quality in the presence of environment-related technological innovation, renewable energy consumption, international trade, and economic growth taking seven fiscally decentralized advanced OECD countries as a case study. Using data from 1990 to 2018, we employed the Spatial Durbin Model (SDM) to test the spatial spillover effect of fiscal decentralization on the environment in seven fiscally decentralized countries. The primary findings show that carbon emissions are affected by the associated regions, which significantly correlates with the spatial distribution, and in the short run, fiscal decentralization increases carbon emissions. However, in the long run, fiscal decentralization decreases carbon emissions and is essential for achieving the goals of net-zero carbon emission. The results also show that the indirect effect is significantly positive in the economic-geographical weight matrix, and the spatial spillover effect of fiscal decentralization is not conducive to the environment of countries with economic exchanges. Furthermore, fiscal decentralization has a threshold effect, and the results show that when the fiscal decentralization degree is higher, it significantly reduces CO2 emissions. Any policy in these countries that target renewable energy, fiscal decentralization, and eco-innovation will significantly reduce carbon emissions.

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Authors and Affiliations

  1. School of Economics, Qingdao University, Shandong Province, China

    Adnan Safi, Qiu-Su Wang & Salman Wahab

Authors
  1. Adnan Safi
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  2. Qiu-Su Wang
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  3. Salman Wahab
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Contributions

AS—conceptualization, data curation, project administration, writing—review and original draft preparation. QW—formal analysis, methodology, results, results interpretation, visualization, resources. SW—conceptualization, data curation, writing—review and editing.

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Correspondence to Qiu-Su Wang.

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Appendix

Appendix

Table 1A

Table 1A Principal component analysis (PCA) for fiscal decentralization
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Table 2A

Table 2A Descriptive statistics
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Safi, A., Wang, QS. & Wahab, S. Revisiting the nexus between fiscal decentralization and environment: evidence from fiscally decentralized economies. Environ Sci Pollut Res 29, 58053–58064 (2022). https://doi.org/10.1007/s11356-022-19860-1

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