Uncovering time-, frequency- and quantile-based impacts of energy, fiscal policy instruments, and economic growth on sustainable development

Abstract

ABSTRACT Hampering environmental deterioration and limiting global warming has become a significant task for policymakers at the global level in order to achieve sustainable development. Dozens of studies have questioned various policy instruments, but the role of fiscal policy instruments for sustainable development has not yet been extensively examined. Therefore, this study aims to investigate the impact of fiscal policy tools, economic development, and renewable energy (REN) utilization on sustainable development, represented by the load capacity factor (LCF). The study focuses on Germany from 1995Q1 to 2021Q4 using novel wavelet- and quantile-based estimation methods. The empirical evidence shows a time- and frequency-based dependency between fiscal policy tools, economic growth, REN utilization, and sustainable development. Economic growth and REN utilization enhance sustainable development through their positive impacts, especially at higher quantiles. The potential positive impact of REN utilization offers hope for ensuring sustainable development and preserving the ecology for the well-being of future generations. Despite the limited positive impact of a specific tax-based fiscal policy instrument, the overall effect of tax-based policy instruments on sustainable development is negative across all quantiles. Protection-based fiscal policy instruments, namely environmental protection expenditures, promote ecological sustainability in higher quantiles. These findings have significant implications regarding ensuring a sustainable future for German policymakers. In this regard, German policymakers should not rely on tax-based fiscal policies to improve ecological sustainability. Instead, they should consider promoting ecological protection expenditures to strengthen sustainable development.