The asymmetric impact of fiscal decentralization on ecological footprint-accounting for methodological refinements and globalization facets

Atrayee Choudhury and Sohini Sahu

The Journal of Economic Asymmetries, 2025, vol. 31, issue C

Abstract: In the wake of global climate change, this study tries to reconcile the competing evidence on the fiscal decentralization–environmental sustainability nexus by examining the impact of the regional authority index, a comprehensive index of decentralization, on ecological footprint - a novel and composite indicator of environmental sustainability. Using novel econometric techniques to account for potential asymmetry and endogeneity issues, such as the dynamic panel threshold methodology, and quantile techniques, on a sample of 53 countries over two decades, we find robust evidence that the effect is non-linear and conditional on the degree of fiscal decentralization. Decentralization exerts a favourable impact on ecological footprint in lower regime countries owing to positive externalities, while the adverse impact of the same is observed in higher regime countries due to the “race to the bottom” phenomenon. Furthermore, the mediating channels of political and financial globalization weaken the positive externalities spillover, whereas social and cultural globalization mitigates the “race to the bottom” effect, addressing the on-going debate about the trade-off between globalization and environmental sustainability. The effective mitigation of climate change impacts under sub-national governance is thus conditioned by an optimal mix of decentralization policies at the ground level, backed by global exchange of socio-cultural policies promoting ecological awareness.

Keywords: Fiscal decentralization; Regional authority; Ecological footprint; Dynamic panel threshold model; Globalization (search for similar items in EconPapers)
JEL-codes: C18 F18 H72 H77 Q48 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:31:y:2025:i:c:s1703494924000495

DOI: 10.1016/j.jeca.2024.e00400

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