Title : Fiscal deficit, environmental taxation, and renewable energy transition: Cross country-distributional evidence from panel MMQR
Abstract:
This study examines the distributional impacts of fiscal policy tools on renewable energy adoption in 71 countries from 2010 to 2021 using the Method of Moments Quantile Regression approach proposed by Machado and Santos Silva in 2019. Unlike conventional mean-based estimators this framework uncovers effects that change sharply across the renewable energy distribution. Larger fiscal deficits strongly curb renewable shares at lower quantiles with a coefficient of -0.219 that is significant at the 10th quantile, but the effect becomes negligible at upper quantiles reaching only +0.005 at the 90th quantile. This declining gradient supports the fiscal space hypothesis. Environmental taxation shows the reverse pattern becoming significant only at higher quantiles with a coefficient of -2.787 at the 90th quantile. Subsample results highlight asymmetry: income growth raises renewable adoption in advanced economies with coefficients from +16.5 to +20.7 all significant at the 0.1 percent level while it lowers the renewable share in emerging and developing economies with coefficients from -12.9 to -16.0 due to modernization displacing traditional biomass. Government effectiveness matters only for emerging and developing economies at lower transition quantiles and loses significance as countries advance. These heterogeneous patterns invisible to Fully Modified OLS call for tailored fiscal strategies to support renewable transitions in developing economies.
