What is the role of fiscal policy in reducing CO2 emissions? Evidence from different income groups

Sedef Oluklulu and Süleyman Kasal ()
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Sedef Oluklulu: Anadolu University
Süleyman Kasal: Anadolu University

Palgrave Communications, 2025, vol. 12, issue 1, 1-11

Abstract: Abstract The purpose of this study is to determine how fiscal policy influences carbon emissions (CO2) in different income groups. The study looks at how government revenue, expenditure, and debt affect carbon emissions or pollution, as well as the Environmental Kuznets Curve (EKC) and renewable energy. It does this using the Driscoll and Kraay (1998) method and covers 150 countries with a range of incomes from 2000 to 2020. The results indicate that high-income countries have more effective fiscal policies against pollution than low- and middle-income countries. This conclusion explains why high-income countries are better equipped to implement effective climate policies. Moreover, the results indicate the presence of an inverted U-shaped Environmental Kuznets Curve (EKC) in all countries and highlight the importance of promoting renewable energy sources. These findings are consistent with policy recommendations emerging from COP28 (Conference of the Parties), which underlined the critical need for international cooperation to reduce global pollution inequalities. The study highlights that without joint global efforts, the fiscal and environmental gap between high- and low-income countries will continue to widen, threatening global sustainability goals. Consequently, by concentrating on low- and middle-income countries, the gap with high-income countries should be mitigated by green fiscal policies.

Date: 2025
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DOI: 10.1057/s41599-025-04905-w

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