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The empirical literature testing the Environmental Kuznets Curve hypothesis reports mixed results on the existence of this relationship. This study argues that the effects of economic development on CO 2 emissions are contingent upon the level of human capital. In the beginning, when human capital starts increasing from its low levels, more education accelerates the use of non-renewable resources and increases pollution emissions. However, when certain threshold levels of schooling are traversed, further enrollments reduce CO 2 emissions by promoting environmental awareness and facilitating the use of environment friendly technologies. To test these competing possibilities, we rely upon an innovative threshold technique where incomepollution relationship is piecewise linear with human capital serving as regime switching trigger. Our empirical findings using a large sample of 122 economies over the period 1980 to 2014 support the contingency effects of human capital in the income-environment relationship. These results are also supported by our findings from cross-sectional regressions in the presence of multiplicative interaction term of income and human capital. Based on these results we argue that an increase in education is necessary for reducing the environmental degradation and ensuring the sustainability of economic development.

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Empirical growth literature finds conflicting results on the relationship between public spending and long-run economic growth. This paper shows that the nature of relationship between the two variables depends upon the institutional quality of a country. Our empirical investigation relies upon OLS, fixed-effects and system-GMM estimators for a large panel of 113 developed and developing economies during the period 1981–2015. The main findings confirm that the adverse impact of public size on output growth holds only for countries with poor institutional quality. By contrast, when the institutional quality exceeds certain thresholds, the growth inhibiting effects of government size become insignificant. From the fiscal policy viewpoint, these outcomes imply that the productivity of public spending is more important than an excessively large public size of the country.