Race to Top or Race to Bottom Approach: Disaggregated Effect of Fiscal Decentralization and Its Implications for Consumption-Based Carbon Emissions

Fiscal decentralization is a growing area of research, particularly for reducing carbon emissions and promoting environmental sustainability. However, its contribution to decreasing consumption-based carbon emissions remains relatively unexplored. Unlike previous studies, the current study explores the effect of expenditure and revenue decentralization on consumption-based carbon emission along with control variables such as exports, imports, human capital, globalization, renewable energy, and economic growth for BRICS economies from 1990 to 2020. The quantile regressions via method of moments test is employed to investigate the long-run relationship among the study variables. To enhance the robustness of the analysis this study also utilizes bootstrapped quantile regression and simple quantile regression tests. The results of quantile regressions via method of moments reveal that revenue decentralization increases consumption-based carbon emissions while expenditure decentralization reduces it. Moreover, it is worth noting that exports reduce while imports increases consumption-based carbon emissions in BRICS nations. Remarkably human capital, globalization, and renewable energy consumption have played pivotal roles in promoting environmental sustainability. However, the rapid pace of economic growth hurts the environment. This study holds substantial policy implications as it underscores the potential effectiveness of government measures aimed at improving environmental quality when these responsibilities are decentralized to the local population of the given state.