Does Fiscal Decentralization Drive CO2 Emissions? A Quantile Regression Analysis

Achieving sustainable models is a crucial challenge today, where government actions play a fundamental role. Therefore, this study aims to analyze the impact of fiscal decentralization on CO2 emissions in 40 economies between 2000 and 2020. To this end, an unbalanced panel was constructed, and the Method of Moments Quantile Regression (MMQR) was employed. As a robustness check, Driscoll and Kraay’s standard errors approach was used. The MMQR results indicate that fiscal decentralization has a positive and significant effect across all quantiles of CO2 emissions. Additionally, it was found that revenue-side decentralization has a greater impact on the lower quantiles of CO2 emissions, while expenditure-side decentralization has a stronger effect on the upper quantiles. The findings also reveal that renewable energy mitigates CO2 emissions, whereas economic growth, resource rents, and information and communication technologies increase them, although the latter with lower statistical significance. These findings are expected to serve as a basis for public policy formulation aimed at improving environmental quality.