Mitigations pathways towards sustainable development: Assessing the influence of fiscal and monetary policies on carbon emissions in BRICS economies

Abstract

Abstract For the past two decades, the body of literature on environmental economics hosts several environmental problems and highlights their causes, calling for immediate action on environmental pollution. In this context, the current article extends the literature by developing a new model that links macroeconomic (fiscal and monetary) policies, aggregate domestic consumer spending per capita, fossil fuel consumption, and renewable energy consumption with carbon dioxide emissions in BRICS economies from 1985 to 2014. The Kao and Westerlund cointegration tests’ outcome confirm the long-run association among the variables. The panel ordinary least squares (OLS), dynamic OLS, fully-modified OLS, and pooled mean group (PMG) panel autoregressive distributed lag (ARDL) estimators reveal the following main findings. First, the expansionary fiscal policy intensifies the harmful repercussions of CO2e. However, contractionary fiscal policy serves as an effective measure to mitigate the detrimental effects of CO2e. Second, expansionary and contractionary monetary policies also deteriorate and ameliorate environmental quality, respectively. Third, aggregate domestic consumer spending and fossil fuels exhibit a positive association with pollution. Fourth, renewable energy enhances the atmospheric quality by disrupting CO2e. The Granger causality test is also applied to confirm the causal relationship between the variables. Based on the current results, the article suggests some salient implications for authorities to design effective policies and plans for curtailing CO2e.