The Role of Fiscal Policy in G20 Countries in the Context of the Environmental Kuznets Curve Hypothesis

Abstract

Fiscal policy is an essential tool that policymakers use for guiding the economy. Thus, the effects of fiscal policy may affect many aspects of our lives, including the impact of carbon dioxide (CO2) emissions. This article investigates the role of fiscal policy, in addition to gross domestic product (GDP), innovation, and financial development, in mitigating CO2 emissions in the context of the Environmental Kuznets Curve theory in the Group of Twenty (G20) countries from 1995 to 2019. The study implied the autoregressive distributed lag of pooled mean group (ARDL-PMG) approach to analyze the suggested model. The results revealed the validity of the model for the G20 countries, as well as a long-run cointegration between the study variables. The results also showed that fiscal policy is associated positively with CO2 emissions. Hence, we recommend reconsidering the applied financial policy, redirecting it to support clean energy projects, provide incentives for projects combating environmental degradation, and relying on environmentally friendly energy.