The Expository Role of Fiscal Policy in Achieving Environmental Sustainability: Evidence Based on Positive and Negative Fluctuations

Fiscal policy fluctuations have significant economic and environmental impacts. However, the environmental impacts of fiscal policy fluctuations across time and quantiles are not well established. Therefore, we investigate the impact of fiscal policy fluctuations on environmental sustainability, proxied by carbon emissions, in the case of China. To investigate the impact of fiscal policy across different levels of intensity is the core ambition. The wavelet quantile regression method has been employed to meet this end. The findings from wavelet quantile regression delineate that positive fluctuations in fiscal policy (i.e., expansionary fiscal policy) promote emissions across quantiles and time. The negative fluctuations in fiscal policy (i.e., contractionary fiscal policy) are responsible for a decrease in emissions. We propose to take measures to offset the critical environmental impacts of positive fluctuations in fiscal policy. These measures may include channelizing the government spending in sustainable sectors as well as the promotion of services sector to extend economic growth objectives while containing emissions.