Impact of carbon footprint of bank loans and fossil fuel subsidies on ecological footprint in Tunisia: A contingency and asymmetric analysis

Abstract

This study examines the impact of the carbon footprint of bank loans (CFBL) and fossil fuel subsidies (TFFS) on the ecological footprint of Tunisia using a linear and nonlinear ARDL framework. The study found that a 1% increase in CFBL is associated with a 0.15% increase in ecological footprint, whereas a 1% increase in TFFS is correlated with a 0.80% increase in ecological footprint. This suggests that fossil fuel subsidies have a larger detrimental impact on the ecological footprint compared to CFBL. The results provide evidence of an asymmetric relationship between CFBL, TFFS, and ecological footprints. Specifically, CFBL has a significant positive association with ecological footprint, with a 1% increase in CFBL associated with a 0.01% increase in ecological footprint, while a 1% decrease in CFBL results in a 0.002% increase in ecological footprint. TFFS has a more pronounced impact on ecological footprint, with a 1% increase associated with a 0.14% decrease and a 1% decrease associated with a 0.30% decrease, which is twice as large. The findings suggest that positive shocks in environmental taxation lead to a 0.54% decrease in ecological footprints, while negative shocks have a profoundly detrimental effect with a 1.33% increase in ecological footprints. Additionally, the interaction effect indicates that the effectiveness of CFBL and TFFS on ecological footprints is contingent on the level of environmental tax. The result shows that with a 1% increase in environmental tax, the negative impact of CFBL and TFFS on ecological footprints decreases by 0.02% and 0.09%, respectively. These findings underscore the importance of reducing carbon emissions and fossil fuel subsidies and implementing effective environmental taxation policies to promote sustainability and mitigate environmental damage.