Do fiscal decentralization and natural resources rent curb carbon emissions? Evidence from developed countries

Abstract

This study provides new insight by introducing the role of fiscal decentralization and natural resources rent in affecting CO₂ emissions. For assessing this objective, this paper use panel data from seven highly fiscal decentralized Organization for Economic Cooperation and Development (OECD) countries from 1990 to 2018. For empirical analysis, we use the Westerlund test and cross-sectional autoregressive distributive lag model. In order to ascertain the integration order of variables, the study utilizes the Pesaran second-generation unit-root test. The findings reveal that all the variables are stationary at first difference. The long-run results confirm that fiscal decentralization and natural resources rent improve the atmosphere by reducing CO₂ emissions. Moreover, gross domestic product and total natural resources rent increase, while improvement in institutional quality reduces CO₂ emissions. For policy implication, this study recommends that transferring the power to the local governments will further reduce CO₂ emissions and shift these countries to more environmentally friendly sources.

Keywords: CO2 emissions; Fiscal decentralization; Gross domestic product; Institutional quality; Total natural resources rent.