Patterns of Interdependence between Financial Development, Fiscal Instruments, and Environmental Degradation in Developed and Converging EU Countries

Abstract

Environmental risks, in particular climate change and environmental pollution, are among the key challenges faced by modern governments nowadays. Environmental risks are associated with specific costs and expenditures necessary to mitigate their negative effects. In this context, the financial system plays a significant role, particularly the public financial system, which allocates and redistributes public resources and has an impact on market participants by imposing environmental taxes. This study assessed the interdependence between environmental degradation and public expenditure, financial sector development, environmental taxes, and related socioeconomic policies. The aim was to diagnose and define the relationship between environmental degradation and sustainable fiscal instruments used in the financial system. The original research approach adopted in the study is the inclusion of variables representing a sustainable approach to assessment of the financial system. Two groups of European Union countries were analyzed for the period 2008–2017, namely, converging economies from Central and Eastern Europe and the largest developed economies of Western Europe. The authors found a strong relationship between greenhouse gas emissions and fiscal instruments, especially expenditure on research and development, and the development of the financial sector. In the case of environmental taxes, their impact differed depending on the country, being predominantly beneficial in countries with higher greenhouse gas emissions but unfavorable in countries with lower emissions levels.

The Dynamic Nexus Between Financial Development, Renewable Energy and Carbon Emission: Role of Globalization and Institutional Quality Across BRI Countries

“…However, due to the instrument's consistency and validity, we preferred a two-step system-GMM (dynamic model). The findings indicate that FD hurts environmental quality which is in line with previous studies (Charfeddine & Kahia, 2019;Wang et al, 2020;Zhang, 2011;Zioło et al, 2020). Moreover, REC and GB help improve the quality of the environment in BRI countries which are consistent with previous findings (Bao & Xu, 2019;Charfeddine & Kahia, 2019;Hao et al, 2021;Rahman & Velayutham, 2020;Uzar, 2020;Jorgenson & Givens, 2014;Li et al, 2015;Shahbaz et al, 2016Shahbaz et al, , 2017Shahbaz et al, , 2019Zafar et al, 2019;Zaidi et al, 2019).…”

“…However, there is no consensus among researchers. Khan et al (2017) (Charfeddine & Kahia, 2019;Wang et al, 2020;Zhang, 2011;Zioło et al, 2020) and it was supported that financial development causes carbon emission. Shahbaz et al (2013) studied the relationship of financial development, energy consumption trade openness and carbon emission in Indonesia.…”

“…Therefore, unlike developed countries, they attempt to boost their economic growth while compromising on environmental quality (not focused on green finance or change in technology) (Charfeddine & Kahia, 2019;Wang et al, 2020;Zhang, 2011;Zioło et al, 2020). globalization, institutional quality, gross domestic product and socio-economic conditions.…”

Exploring the dynamic relationship between financial development, renewable energy, and carbon emissions: A new evidence from belt and road countries

“…Besides, most countries under the BRI platform have low-or middle-income economies (developing countries). Therefore, unlike developed countries, they attempt to boost their economic growth while compromising environmental quality (not focused on green finance or change in technology) (Charfeddine & Kahia, 2019;Wang et al, 2020;Zhang, 2011;Zioło et al, 2020). Moreover, REC reports the estimated value of the coefficient as statistically significant and negatively correlated with CO 2 emissions, indicating that a 1% change in REC can decrease CO 2 emissions by -0.001% with a significance level of 5% in BRI countries.…”

“…Results indicate that financial development and globalization cause environmental degradation. The relationship between financial development and carbon emissions was also studied (Charfeddine & Kahia, 2019;Wang et al, 2020;Zhang, 2011;Zioło et al, 2020) and it was supported that financial development causes carbon emissions. Shahbaz et al (2013) studied the relationship of Indonesia's financial development, energy consumption, trade openness, and carbon emissions.…”