THE IMPACT OF RENEWABLE ENERGY CONSUMPTION ON BUDGET DEFICIT: INSIGHTS FROM OECD COUNTRIES

Renewable energy has emerged as a significant alternative to fossil fuels, particularly given the environmental damage associated with the latter. A key concern is that renewable energy consumption may worsen budget deficits due to its higher costs and substantial government support. While theory suggests this link, this analysis is one of the first comprehensive empirical investigations on the topic. Therefore, this study investigates the assocation between renewable energy and budget deficits in 26 OECD countries using 1995–2022 data, employing three cointegration tests and Pedroni's (2001) DOLSMG technique. The findings indicate a significant cointegration relationship between renewable energy consumption and budget deficits across the three different tests. Furthermore, according to the DOLSMG estimator, an increase of 1% in the utilization of renewable energy correlates with an approximate worsening of 0.53% in budget balances. Additionally, based on these results, recommendations for the redesign of renewable energy policies are presented.