The Effects of Local Government Expenditures on Carbon Dioxide Emissions: Evidence from Republic of Korea

Abstract

This study analyzes the direct and indirect effects of local government expenditure for air quality on CO2 emissions using a two-stage dynamic panel model. The results of the first-stage empirical analysis show that local government expenditure for air quality has a positive effect on per-capita GRDP. In the second-stage empirical analysis, an inverse U-shaped relationship between the per-capita GRDP and CO2 emissions is observed. The average direct and indirect effects of local government expenditure for air quality on CO2 emissions indicate that local government expenditure directly reduces CO2 emissions, while it indirectly increases CO2 emissions through regional economic growth. However, the direct effect is found to be greater than the indirect effect, and the total effect indicates that local government expenditure for air quality reduces CO2 emissions. Furthermore, the results demonstrate significant regional disparities in both the direct and indirect effects, emphasizing the pivotal role of tailored air-related expenditure policies in relation to regional economic growth.