Exploring the nexus between tax revenues, government expenditures, and climate change: empirical evidence from Belt and Road Initiative countries

The greenhouse gas (GHG) emissions generated by human activities are the leading cause of rapid climate change. High energy consumption projects in the BRI initiative have more impact on the environment. Therefore, fiscal policy instruments are essentials to combat climate change. This paper explores the impact of fiscal policy instruments, FDI, energy use, and GDP on climate change in Belt and Road Initiative (BRI) countries. The study utilizes fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS) long-run econometric models to estimate the long-run results in the full panel and individual countries. Furthermore, Dumitrescu and Hurlin’s (2012) causality test has been utilized to observe the short-run causalities among variables. The empirical findings confirmed that fiscal policy instruments expressively help to mitigate climate change, while foreign direct investment significantly intensifies the climate change in BRI. The short-run heterogeneous causality endorses bidirectional causality between fiscal policy instruments and climate change. It suggests that policy-makers should consider fiscal policy instruments to mitigate climate change in the BRI countries.