Does fiscal policy spur environmental issues? New evidence from selected developed countries

In this study, we investigate the effects of fiscal policies on the environment with annual frequency period from 1972 to 2017 data for countries such as Australia, Chile, Finland, the UK, and Sweden. This study leverages on second-generation unit root tests, bootstrap cointegrated test, and long-run coefficient estimators suitable for heterogeneous panels under review. Empirical results of the long-run coefficient estimators are consistent with economic-environmental intuition and extant literature. However, in terms of fiscal policy, these results do not provide any evidence of the expected mitigating effects on environmental pollution in any country. Our main findings show that revenue policy does not go beyond funding government expenditure in these countries. Based on these results, we propose two new concepts to the literature on carbon taxes. We call these concepts New Environmental Sin Taxes and Global Environmental Debts. We base this result on the argument that regional solutions to global problems are insufficient.