The impact of climate change on government spending in South Africa using dynamic ARDL and kernel-based regularized least squares

Continuous rise of uncertainty of climate risk associated outcomes posed the threat to sustainable government budget. The purpose of this research is to investigate the impact of climate change, expressed by carbon emissions, on government spending in South Africa from 1960 to 2023. To achieve meaningful results in the econometric procedure, the following control variables were considered: population growth, GDP growth, and inflation. To scrutinize the association amongst climate change and government spending, the paper adopted methods such as dynamic ARDL and Kernel-based regularized least squares (KRLS), and frequency causality analysis. The results show that in the long run, there is cointegration between climate change and government expenditure. These findings indicate that climate change has a positive impact on government spending. A 1% increase in climate change leads to a 0.123% increase in government expenditure. Additionally, frequency domain causality shows unidirectional causality running from climate change to government expenditure at all frequencies, such as short, medium, and long term. The outcomes of this paper suggest that reinforcing government expenditure management and adjusting the efficiency of climate-related investments is crucial to ensure fiscal sustainability in the context of limited budgetary space and rising public debt.