Assessing the effectiveness of environmental policies in the OECD countries: An advanced panel data estimation study

Due to the rapid increase in industrialization, environmental degradation has recently grown into a serious problem. The existing literature has mostly focused on the reduction of CO2 emissions and ignored PM2.5 emissions, which have a direct impact on the environment through air quality. Therefore, this study attempts to look into the effectiveness of environmental policies in determining environmental sustainability by lowering PM2.5 emissions in the Organization for Economic Cooperation and Development (OECD) countries. These are categorized as fiscal (green taxes), economic incentives, and research and development (R&D) investment policies. The second-generation panel co-integration method and Cross-Sectionally Autoregressive Distributed Lag (CS-ARDL) are employed for the period 1990–2019 to estimate the results. The Westerlund cointegration results confirmed a stable, long-run relationship between all the variables. The study shows that not all environmental regulations are equally successful in lowering PM2.5 emissions. According to the findings, R&D and fiscal policy help reduce PM2.5 emissions, whereas economic incentive strategies and population increase them. This shows that establishing green taxes on these emissions and developing green R&D policies will facilitate environmental sustainability. The overall findings let us classify some good performances in the OECD countries regarding the design of environmental policies, even though we should also keep in mind that there isn’t a solution that works for everyone. Policy makers should modify their plans in accordance with the nature and unique features of their country or region.