Fiscal policy for mitigating carbon emissions worldwide evidence

Abstract

The global scale of climate change-related environmental issues has caused international action. In this context, specific targets have been determined in international agreements. Governments have inevitable responsibilities to achieve the goals set in these agreements. Governments use fiscal policy tools effectively, especially in activating policies that are decisive in reducing climate change. This research analyzes the role of government expenditure in fiscal policy. This study, encompassing 88 countries, analyzed the effect of government expenditures on carbon emissions from 2016 to 2022, using system GMM technique. The countries analyzed were then divided into developed and developing groups using the IMF's (2024) classification. The study found a significant, negative effect of government expenditures on carbon emissions in the whole sample. Developed and developing countries yielded similar analytical results. A statistically significant negative relationship was observed between government expenditures and carbon emissions.