Modeling for Insights: Does Fiscal Decentralization Impede Ecological Footprint?

Abstract

In recent years, the debate on environmental issues has become a hot topic. Fiscal decentralization is believed to be a crucial driver of environmental sustainability. However, the discussion on the effect of fiscal decentralization (FD) on environmental sustainability has not reached a unanimous conclusion. In this study, we inspect the effect of fiscal decentralization, economic development, technological innovation, economic globalization, and energy use on environmental quality in eight Asia-Pacific Economic Cooperation (APEC) member countries. In addition, we analyze the mechanisms through which fiscal decentralization influences the ecological footprint (EF) through the channels of technological innovation and economic growth. Using the STIRPAT framework, this study employed the CS-ARDL method for short-run and long-run analyses that deal with slope heterogeneity and cross-sectional dependence. The empirical results show that fiscal decentralization and technological innovation mitigate ecological footprint, while economic development, energy consumption, and urbanization negatively affect environmental quality. However, economic globalization is not related to the EF in the sample economies. The results further reveal that FD enhances environmental quality through the channel of technological innovation, while it does not affect the EF through the channel of economic growth. Finally, it is recommended to make a reasoned division between the rights and responsibilities of local government and central government in environmental pollution management, and optimize the environmental system. At the same time, policymakers should encourage technological innovation to reduce the adverse impacts of economic development and energy consumption on the environment.