Fiscal-energy synchronization and pollution cost reduction in MEDI-6 countries: a novel modeling approach

Abstract The study examines the dynamic relationship of fiscal instruments, renewable energy consumption and cost of pollution in six Mediterranean economies (France, Italy, Malta, Slovenia, Greece and Croatia) over 2000–2023. Moving beyond conventional emissions-based metrics, pollution cost is employed as a comprehensive indicator of environmental and economic burden. Both an evidential analysis, through the integration of the Kuramoto Dynamic Model (KDM) used to determine the synchronization among environmental tax revenues, environmental protection spending, and renewable energy consumption, in terms of policy and coherence of energy markets has been undertaken, and synchronization has been linked to cost of pollution through a feedback loop, to measure how the conscious and coordinated fiscal energy policies would affect the amount of economic benefits derived from relaxing environmental damage. The feedback loop to the eco-coherence is implemented in a Cross Sectionally Augmented Nonlinear Autoregressive Distributed Lag (CS NARDL) to observe the asymmetric short-run and long-run responses on pollution cost to positive and negative shocks from the three instruments. The results are that greater eco-coherence leads to lower pollution costs, with renewable energy consumption having the greatest level of influence on the system eco-coherence. The asymmetric estimation indicates that decreases in renewable energy consumption or fiscal measures have a more negatively asymmetric influence on pollution cost in comparison to the gains achieved with an equivalent increase, indicating the risk of political retractions of fiscal policies. This combined modelling approach represents a different perspective on measuring environmental policy effectiveness, emphasizing sustained, aligned fiscal commitment, and adopting renewable energy. Policy implications suggest a need for regional alignment to secure any gains from alignment, and to protect against deterioration that could erode environmental and economic advancement. Graphical Abstract