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Testing the Mediating Role of Fiscal Policy in the Environmental Degradation in Portugal: Evidence from Multiple Structural Breaks Co-integration Test

Author

Listed:
  • Tomiwa Sunday Adebayo

    (Cyprus International University)

  • Bright Akwasi Gyamfi

    (Sir Padampat Singhania University)

  • Festus Victor Bekun

    (Istanbul Gelisim University
    Lebanese American University)

  • Mary Oluwatoyin Agboola

    (Dar Al Uloom University)

  • Mehmet Altuntaş

    (Nisantasi University)

Abstract

Using Portugal, the present study explores the nexus between fiscal policies advancement and environmental emissions through the channel of carbon-income function framework. We used recent second-generational time series econometrics tests that comprise bounds testing in conjunction with multiple break structural break test of Maki co-integration and gradual shift causality test and wavelet coherence method for soundness of analysis. Furthermore, to circumvent omitted variable bias issues, energy consumption was disaggregated into non-renewable energy and renewable consumption, with GDP growth incorporated as additional variables. Empirical evidence for the Portuguese economy shows that economic growth, non-renewable energy intake, and fiscal policy all dampen the quality of the environment in Portugal. These findings have environmental implications for sustainability targets in Portugal which is currently on the trajectory for healthy and sustainable energy intake. Additionally, renewable energy consumption shows statistically significant strength to improve environmental quality as it reduces CO2 emission, as reported by our study regression. On the direction of causality analysis, we observed that non-renewable energy and fiscal policy drive pollution emission one-way as reported by the gradual shift causality analysis. From a policy lens, there is need for more strides in action plans on fiscal policy development to achieve environmental sustainability in Portugal. Further insights are elucidated in the concluding remarks section.

Suggested Citation

  • Tomiwa Sunday Adebayo & Bright Akwasi Gyamfi & Festus Victor Bekun & Mary Oluwatoyin Agboola & Mehmet Altuntaş, 2024. "Testing the Mediating Role of Fiscal Policy in the Environmental Degradation in Portugal: Evidence from Multiple Structural Breaks Co-integration Test," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 5250-5270, June.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:2:d:10.1007_s13132-023-01351-4
    DOI: 10.1007/s13132-023-01351-4
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