Asymmetric impact of fiscal decentralization and environmental innovation on carbon emissions: Evidence from highly decentralized countries

Abstract

This study examines the asymmetric link between fiscal decentralization, environmental innovation, and carbon emissions in highly decentralized countries. Our preliminary findings strictly reject the preposition of data normality and highlight that the observed relationship is quantile-dependent, which may disclose misleading results in previous studies using linear methodologies. Therefore, a novel empirical estimation technique popularized as Method of Moments Quantile Regression is employed that simultaneously deal with non-normality and structural changes. The results exhibit that fiscal decentralization significantly mitigates carbon emissions only at lower to medium emissions quantiles. On the other hand, environmental innovation reduces carbon emissions only at medium to higher emissions quantiles. Interestingly, the emissions-reducing effect of fiscal decentralization is highest for lower emissions quantiles and lowest for higher emissions quantiles. In contrast, the impact of environmental innovation is lowest for lower emissions quantiles and highest for higher emission quantiles. Economic growth and population increase carbon emissions, and their emissions-increasing effect are lowest for lower emissions quantiles and highest for higher emissions quantiles. Moreover, the heterogeneous panel causality test confirms a one-way causal association, implying that any policy intervention regarding fiscal decentralization and environmental innovation significantly affects carbon emissions.

Environmental performance and international trade in China: The role of renewable energy and eco‐innovation

“…In addition, a study conducted by Z. Khan, Ali, Umar, et al (2020), who examined the impact of environmental innovation and renewable energy on carbon emissions in G7 countries, suggested that future studies should also examine this area because the environment changes frequently, and different countries have different environmental and related factors. Similar results have been found in recent studies using eco‐innovation as a proxy for green innovation in different countries (He et al, 2021; Lingyan et al, 2021; Razzaq, Ajaz, et al, 2021; Razzaq, An, et al, 2021). Thus, to respond to this gap, the present study also examines the role of renewable energy and green innovation in environmental performance by examining the international trade of China.…”

Composite fiscal decentralisation and green innovation: Imperative strategy for institutional reforms and sustainable development in OECD countries

“…Their primary findings suggest an inverted U shape relationship between FD and pollutants. Several other studies also documented the mixed effects of FD on environmental quality (Lingyan et al 2021; Khan et al 2021). The distinct outcome between decentralisation and ecological pollution is mainly explained via three main theories; (i) promotion, (ii) inhibition and (iii) no causality theory.…”

“…This method is based on the relationships between population, income, technology and environmental effects, as presented in the following equation: where environmental pollution is denoted by I, population headcount represented by P, level of economic activity represented by A, and technology level defined by Dietz and Rosa (1997) and T. Dietz and Rosa (1994) generalised this basic model as a stochastic version, usually referred as STIRPAT (Stochastic Impacts by Regression on Population, Affluence, and Technology) model. We have extended the same model following Lingyan et al (2021). where CO 2 , CFD, GI, INS, GDP, POP are carbon emissions, CFD index, green innovation, institutional governance index, population and per capita income, respectively.…”

“…The Paris Climate Agreement (PCA) was introduced in 2015 to cope with growing energy demand, mainly by emerging countries around the world. To restrict this acceleration of global warming, PCA signatories committed to reducing global temperature growth below 2°C (Lingyan et al 2021). In response, several central governments have made environmental policies to tackle energy and emission control issues (Cheng et al, 2020).…”

The road to green development: How can carbon emission trading pilot policy contribute to carbon peak attainment and neutrality? Evidence from China

“…The second industrial revolution was driven by energy consumption around the world’s economic development, while the third industrial revolution also with technological innovation breakthroughs to enhance energy utilization ( Huang et al, 2022 ). Nevertheless, the long-term sloppy development model which sacrifices the environment has contributed to the global climate problem, which constrains the economic development of all nations nowadays, and especially has a significant impact on the living environment of humankind, threatening its prosperity and survival ( Yang et al, 2021a ; Lingyan et al, 2022 ). Because of the cross-regional nature of carbon emissions, high carbon emissions have emerged as a shared dilemma in the world ( Sharif et al, 2019 ; Rana et al, 2021 ).…”