Transition towards ecological sustainability through fiscal decentralization, renewable energy and green investment in OECD countries

Abstract

Fiscal decentralization implies the transfer of fiscal and financial authority to local government, which is highly integrated with sustainable economic decisions. Against this backdrop, this research examines the asymmetric impact of fiscal decentralization, green investment, and renewable energy consumption on ecological footprints from the context of selected OECD member states during 1990–2019. Moreover, it also examines the moderating role of fiscal decentralization in promoting green investment and, subsequently, environmental sustainability. For this purpose, advanced panel data estimators are applied to confirm cross-sectional dependency, unit-roots, and cointegration among model variables. Besides linear heterogeneous estimators, this research uses methods of moments quantile regression (MMQR) to integrate asymmetric behaviors of regressors. The preliminary results confirm cross-sectional dependence, non-stationarity, and cointegration properties among the variables of interest. The overall findings report that fiscal decentralization, green investment, and renewable energy consumption play a significant role in reducing the ecological footprints; however, their effects significantly varied across lower, medium, and higher quantiles. Particularly, these effects are more pronounced from middle to highest quantiles. Moreover, the interactive effects of fiscal decentralization and green investment are strongly negative, implying a substantial decrease in the ecological footprints of sample countries. These results suggest that fiscal decentralization improves environmental sustainability through green investment and renewable energy transition.