Stock Externalities and Environmental Protection Expenditures in Türkiye: A Fourier Cointegration Analysis

Environmental issues such as climate change and cumulative emissions have intensified debate on the effectiveness of public environmental protection expenditure. Traditional Pigouvian taxes and subsidies mainly target instantaneous flow externalities. However, it is difficult to resolve dynamic stock externalities that accumulate over many years, such as climate change and cumulative greenhouse gas emissions, through taxation policies alone. This situation requires the government to make direct environmental protection expenditure to support the ecosystem’s natural assimilation capacity and reduce the rate at which pollution accumulates. This study specifically examines the relationship between stock externalities and environmental protection expenditure within the context of the Turkish economy, which is highly industrialised and under pressure to comply with international environmental commitments such as the European Green Deal and the Paris Climate Agreement. In the study’s empirical analysis phase, long-term relationships between macroeconomic variables and pollution stocks were tested using Fourier cointegration methods and econometric time series analyses. The analysis revealed a long-term co-movement (cointegration) relationship between the series, indicating that public environmental protection expenditures and industrial emissions move in the same direction over the long term. FMOLS and DOLS estimates indicate that environmental protection expenditures are positively associated with industrial emissions in the long run (FMOLS coefficient = 2.1125; DOLS coefficient = 2.0375), whereas renewable energy consumption exerts a negative effect on emissions (FMOLS coefficient = −1.4391; DOLS coefficient = −1.4967). These results suggest that environmental protection expenditure in Türkiye is not independent of current production and industrialisation dynamics, and that its emission-reducing effects are influenced by technological transformation processes.