Does fiscal policy spur environmental issues? New evidence from selected developed countries

Abstract

In this study, we investigate the efects of fscal policies on the environment with annual frequency period from 1972 to 2017 data for countries such as Australia, Chile, Finland, the UK, and Sweden. This study leverages on second-generation unit root tests, bootstrap cointegrated test, and long-run coefcient estimators suitable for heterogeneous panels under review. Empirical results of the long-run coefcient estimators are consistent with economic-environmental intuition and extant literature. However, in terms of fscal policy, these results do not provide any evidence of the expected mitigating efects on environmental pollution in any country. Our main fndings show that revenue policy does not go beyond funding government expenditure in these countries. Based on these results, we propose two new concepts to the literature on carbon taxes. We call these concepts New Environmental Sin Taxes and Global Environmental Debts. We base this result on the argument that regional solutions to global problems are insufcient.