Exploring the mediating role of digital economy in the relationship between fiscal decentralization and the SDGs dimensions in the EU

The motivation of this research is the surge in the integration of the digital economy (DE) and fiscal decentralization (FD) as crucial issues for countries. To maintain sustainable growth, it is important for EU to adopt sustainable development goal (SDGs) practices. However, the connection between DE, FD, and SDG practices has not been thoroughly examined in existing literature. Therefore, the objective of this study was to examine the mediating role of DE between FD and SDGs in EU. We employed a panel dataset between 2016 and 2022 from Eurostat, the Organization for Economic Cooperation and Development, and Government Finance Statistics, using a quantitative research design, and applied the structural equation model (PLS-SEM) analysis to test the hypotheses. The results indicate that FD has a significant negative effect on economic sustainability but a significant positive effect on environmental and social SDGs. In addition, FD has a significant positive effect on DE. We also found that DE has a significant positive relationship with economic and social SDGs. However, DE has a negative but significant influence on environmental sustainability. This study also proved that DE plays a mediating role between FD and Sustainability. This study contributes to theories of fiscal federalism and resource dependency. These original findings have several practical implications for policymakers and contribute to the current debate on the role of FD in SDGs through DE. hence, we recommend that policymakers prioritize the development of broadband Internet access, e-governance resources, and invest in digital skill training programs.This study examines the mediating role of digital economy between fiscal decentralization and sustainable development goals in the European union. The results indicate that fiscal decentralization has a significant negative effect on economic sustainability. Digital economy has a negative but significant influence on environmental sustainability. This study also highlights that digital economy plays a mediating role between fiscal decentralization and Sustainability. This highlights the importance of digitalization for sustainability dimensions. These robust results support efforts towards a move for a digital economy to foster sustainable growth.Utilizing a panel dataset between 2016 and 2022 from Eurostat, the Organization for Economic Cooperation and Development, and Government Finance Statistics, using a quantitative research design, and applied the structural equation model analysis to test the hypotheses. The results indicate that fiscal decentralization has a significant negative effect on economic sustainability but a significant positive effect on environmental and social sustainable development goals. In addition, fiscal decentralization has a significant positive effect on digital economy. We also found that digital economy has a significant positive relationship with economic and social sustainable development goals. However, digital economy has a negative but significant influence on environmental sustainability.The findings of this research have valuable practical implications for policymakers and guide governments in defining more interesting strategies to manage fiscal decentralization in a wise manner to successfully achieve the objectives of the sustainable development goals through the proper implementation of digital economy on a large scale among societies. It is important for policymakers to strike a balance in fiscal decentralization ensuring efficient revenue allocation mechanisms and enhancing fiscal responsibilities, ensuring that local governments have sufficient autonomy to address local needs while maintaining effective oversight and coordination. Consistent with our results on digital economy and sustainable development goals, governments should prioritize the development of broadband Internet access, e-governance resources, and other digital technologies. Investing in digital skills training programs will ensure that citizens and businesses can take advantage of the opportunities presented by digital economy. The study highlights further research could investigate this model in developing economies to enable comparison. Ultimately, the study paves the way for a more digital and sustainable drive by providing evidence and direction for future initiatives.