Achieving Sustainable Development Through the Green Budget in the European Union: The Role of Renewable Energy, Energy Productivity, and Environmental Policy

ABSTRACT Achieving sustainable development increasingly depends on integrating fiscal instruments into environmental and energy strategies, a concept referred to as the green budget. By aligning taxation and public expenditures with sustainability goals, green budget policies can promote environmental protection while maintaining economic and social stability. This study examines the effects of environmental protection expenditures, renewable energy transition, energy productivity, economic growth, and energy taxes on the sustainable development index in European Union countries from 1995 to 2021. Using RCCE and AMG estimators, the analysis focuses on long‐run relationships and robust results. The findings reveal that renewable energy transition and energy productivity positively influence sustainable development across the EU, while economic growth and environmental protection expenditures have negative effects at the panel level. However, environmental protection expenditures enhance sustainable development in Lithuania and Romania, whereas energy taxes reduce it in Luxembourg. These results suggest that sustainable energy policies, particularly those promoting renewable energy and productivity, are more effective in sustainable development. Therefore, the structure of green budget measures should be reconsidered to ensure that fiscal tools effectively support environmental, economic, and social objectives.