Green fiscal policy and green finance in mitigating environmental deterioration in Central European regions

Environmental deterioration has intensified across Central Europe as rapid economic expansion continues to rely heavily on resource extraction, fossil fuel consumption, and industrial emissions. This growing ecological pressure has renewed interest in policy instruments capable of steering regions toward sustainable development. Motivated by these concerns, this investigation assessed how green fiscal policy (GFP), green finance (GRF), patent applications (PAP), renewable energy (REN), and natural resource rent (NAR) influence carbon emissions (CAR) in 13 Central European economies with data from 1990–2022. The analysis applies a series of diagnostics followed by the Cross Sectionally Augmented Autoregressive Distributed Lag (CS ARDL) model, supported by FMOLS robustness and Dumitrescu–Hurlin causality tests. The results reveal that GFP, GRF, and REN significantly reduce carbon emissions in both the short and long run. Conversely, NAR and PAP unexpectedly appreciate emissions, depicting inefficiencies in resource governance and the limited environmental orientation of current innovation activities. The D&H causality illustrated both unidirectional and bidirectional causality among the variables. These findings imply that Central European economies can accelerate their transition toward ecological sustainability by strengthening carbon pricing mechanisms, renewable energy investment, restructuring green finance portfolios to low carbon technologies, and enforcing sustainable resource extraction practices for long term carbon neutrality.