Global Evidence on the Fiscal Decentralization – Ecological Footprint Nexus : A Combination of Dynamic Panel Threshold and Quantile Regression Approach

The extant literature provides mixed evidence on the fiscal decentralization – environment sustainability nexus. To address the mixed evidence in rather limited literature, we explore the impact of the regional authority index – a relatively comprehensive index of decentralization on environment sustainability measured by ecological footprint, which is a relatively newer and superior indicator of environment sustainability. We study the effect on a global sample of 53 countries over two decades by combining the dynamic panel threshold model with quantile regression techniques. Our estimation techniques give robust evidence that the effect is non-linear and conditional on the degree of fiscal decentralization. The favourable and significant effect of decentralization on ecological footprint is seen only in countries below the threshold level of decentralization owing to positive externalities, while the adverse impact of the same is observed in countries with greater level of decentralization due to the “race to the bottom” effect. The effect of the positive externalities spill over is further strengthened by the mediating channels of social and cultural globalization, whereas the negative effect is augmented in countries with a greater extent of financial globalization. The study thus provides testimony that effectively combating climate change under sub-national governance is conditioned by an optimal mix of regional authority at the ground level, backed by global exchange of policies promoting social and cultural harmony