Natural resources, carbon neutrality, and fiscal federalism: Implications for G7 countries amid rising Covid-19 concerns

Abstract

Growing apprehensions regarding the environment have become a significant focus of recent literature. In this vein, revenue decentralization, expenditure decentralization, natural resource rent, and economic growth gained less prominence in explaining the consumption-based carbon dioxide emissions of the G7 countries amid rising Covid-19 concerns. Thus, the role of these factors is crucial in investigating their impact on environmental sustainability using G7 nations from 1990 to 2021. The preliminary findings assert the existence of cross-sectional dependence, slope heterogeneity, first-order stationary, and long-run equilibrium relationship between the stated variables. The results show that revenue decentralization positively impacts carbon neutrality, while expenditure decentralization, natural resource rent, and economic growth enhance environmental degradation in the region. Regarding the indirect impact, expenditure decentralization positively moderates the influence of natural resource rent; however, the magnitude is less than its direct impact. Concerning the moderating effect of revenue decentralization and natural resource rent, the outcomes revealed that revenue decentralization mitigates the destructive consequences of natural resource dependency and subsidizes the emissions mitigating effects. The study suggests a transparent fiscal decentralized setup could help to achieve environmental sustainability.