Can fiscal decentralization be the route to the race to zero emissions in South Africa? Fresh policy insights from novel dynamic autoregressive distributed lag simulations approach

Abstract

There has been a plethora of debate on the link between fiscal decentralization and a drop in carbon dioxide (CO 2 ) emissions, even though the evidence supporting this assertion is relatively sparse. Although the precise nature of this relationship is still up for discussion, economic hypothesis postulates that fiscal decentralization has an impact on environmental sustainability. Some researchers claim that fiscal decentralization could potentially result in a race to the top, while some believe it would lead to a race to the bottom. This analysis intends to shed light on the precise processes by which this connection may work in South Africa between 1960 and 2020 in light of current discussions in environmental and development economics. In contrary to previous studies, this paper employs a cutting-edge dynamic autoregressive distributed lag simulations methodology to evaluate the positive and negative variations in fiscal decentralization on CO 2 emissions. Our findings demonstrate the prevalence of the race to the top strategy by illustrating how fiscal decentralization has a bearing on CO 2 emissions reduction in the short and long terms. In accordance with the findings, greater fiscal decentralization should be implemented through the transfer of more powers to regional authorities, especially in the realm of environmental legislation considerations, in a bid to preserve South Africa’s environmental integrity. By establishing a lower tier of government and defining roles at the federal and provincial divisions, South Africa could adopt strategies to improve green environment in an effort to fulfill the energy-saving tasks of fiscal expenditures.

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