Revisiting the EKC hypothesis by assessing the complementarities between fiscal, monetary, and environmental development policies in China

• Published in: Environmental science and pollution research international Vol. 29; no. 16; pp. 23545 - 23560
• Main Authors: Zeraibi, Ayoub, Ahmed, Zahoor, Shehzad, Khurram, Murshed, Muntasir, Nathaniel, Solomon Prince, Mahmood, Haider
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 01-04-2022; Springer Nature B.V
• Subjects: Aquatic Pollution; Atmospheric Protection/Air Quality Control/Air Pollution; Carbon dioxide; Carbon dioxide emissions; Carbon neutrality; Development policy; Earth and Environmental Science; Economic development; Economic growth; Economics; Ecotoxicology; Emission; Emissions; Empirical analysis; Environment; Environmental Chemistry; Environmental Health; Environmental Kuznets curve; Environmental science; Fiscal policy; Hypotheses; Monetary policy; Research Article; Waste Water Technology; Water Management; Water Pollution Control; China; Monetary policy; Money supply; Fiscal policy; Government expenditure; CO2 emissions; China
• ISSN: 0944-1344; 1614-7499
• DOI: 10.1007/s11356-021-17288-7

Recently, China has declared its national objective of becoming carbon neutral by 2060. Hence, mitigating carbon dioxide emissions has become an important agenda of the Chinese government. Against this backdrop, this paper aims to evaluate the effectiveness of pursuing expansionary fiscal and monetary policies on China’s carbon dioxide emission figures by using annual frequency data from 1980 to 2018. Accordingly, this study considers the levels of government expenditure and broad money supply as fiscal and monetary policy instruments, respectively. Besides accounting for structural break concerns in the data, the findings from the empirical analysis reveal that there are long-run associations between carbon dioxide emissions, economic growth, and fiscal and monetary expansion in China. Moreover, the results also show that in both the short- and long-run expansionary fiscal policy trigger higher carbon dioxide emissions while expansionary monetary policy inhibits the carbon dioxide emission figures of China. Furthermore, the results invalidate the existence of the Environmental Kuznets Curve hypothesis since the relationship between China's economic growth and carbon dioxide emissions is evidenced to portray an N-shape. In line with these findings, it is recommended that China achieve environmentally sustainable economic growth by aligning the national fiscal and monetary policies with the 2060 carbon-neutrality objective.