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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

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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.

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Data Availability 

The data for this present study are sourced from world development indicators (WDI) available at www.data.worldbank.org.

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Authors and Affiliations

  1. Department of Economics, Faculty of Economics and Administrative Sciences, Cyprus International University, North Cyprus, Mersin 10, Turkey

    Tomiwa Sunday Adebayo

  2. School of Management, Sir Padampat Singhania University, Bhatewar, Udaipur, Rajasthan, India

    Bright Akwasi Gyamfi

  3. Faculty of Economics, Administrative and Social Sciences, Department of International Logistics and Transportation, Istanbul Gelisim University, Istanbul, Turkey

    Festus Victor Bekun

  4. Adnan Kassar School of Business, Department of Economics, Lebanese American University, Beirut, Lebanon

    Festus Victor Bekun

  5. College of Business, Finance and Banking department, Dar Al Uloom University, Riyadh, Saudi Arabia

    Mary Oluwatoyin Agboola

  6. Faculty of Economics, Administrative and Social Sciences, Department of Economics, Nisantasi University, Istanbul, Turkey

    Mehmet Altuntaş

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Adebayo, T.S., Gyamfi, B.A., Bekun, F.V. et al. Testing the Mediating Role of Fiscal Policy in the Environmental Degradation in Portugal: Evidence from Multiple Structural Breaks Co-integration Test. J Knowl Econ (2023). https://doi.org/10.1007/s13132-023-01351-4

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