The finance–environment nexus in Sub-Saharan Africa remains complex, particularly in nations where institutional quality and fiscal policies are in an early stage. To address this, the study evaluates the impact of financial development on environmental sustainability in Sub-Saharan Africa, emphasising the moderating roles of environmental taxes and regulatory quality. Using a balanced panel methodology across 11 SSA nations from 2006 to 2023, the study employs a multi-estimation model (fixed effects (FE), Fully Modified Ordinary Least Squares (FMOLS) and Autoregressive Distributed Lag (ARDL)) to capture both short- and long-run relationships. From the analysis, the FE and FMOLS estimates indicate that financial development significantly increases ecological footprints, while foreign direct investment and government expenditure are associated with lower environmental footprints. However, the ARDL estimates reveal that environmental taxes and regulatory quality significantly reduce the ecological footprint, motivating a policy shift. Most importantly, the moderation estimation reveals that environmental taxes condition the finance–environment nexus in SSA. This depicts that while financial development worsens environmental outcomes, its adverse effects are nullified and reversed under a stronger environmental tax framework. These findings are relevant to the Environmental Kuznets Curve theory and draw insights from the institutional and financial intermediation theory. The study provides evidence that financial development, when integrated with effective environmental taxation and institutional quality, promotes environmental sustainability in SSA. Policymakers are therefore urged to strengthen environmental tax frameworks, integrate green financial intermediation and intensify regulatory institutions to achieve a sustainable finance–environment model and support SDG 13 in SSA.
Okere et al. (Wed,) studied this question.