Carbon Dioxide and Greenhouse Gas Emissions: The Role of Monetary Policy, Fiscal Policy, and Institutional Quality

Environmental control remains a salient aspect of states' policies in the present decade. To reduce emissions, governments and central banks tend to adopt various strategies. The present research quantifies the nexus between fiscal and monetary policy, institutions' quality, central bank characteristics, and carbon dioxide and greenhouse gas emissions. Data has been sourced from 95 countries during the period from 1998 to 2019. According to the empirical results, the main determinants of gas emissions in developing countries are economic growth, government expenses, and central bank independence, whereas, in developed countries, they are economic growth, government efficiency, and central bank transparency and independence. Economic growth is a significant deteriorating factor in the state of the environment. By contrast, institutional and bureaucratic quality, measured through government effectiveness and expansionary fiscal policies as well as central bank independence and transparency, are ameliorating factors, as they decrease emissions. To conclude, governments must first reduce control over central banks and target government spending on the energy transition.

Automated summary

Environmental control is a key component of states' policies, and reducing emissions requires strategies involving fiscal and monetary policy, as well as institutional factors such as government effectiveness and central bank characteristics. The study finds that economic growth, government expenses, and central bank independence are the main determinants of gas emissions in developing countries, while economic growth, government efficiency, and central bank transparency and independence play a significant role in developed countries. Governments should prioritize reducing control over central banks and directing government spending towards energy transition.