Exploring the asymmetric effect of fiscal decentralization on economic growth and environmental quality: evidence from India

In recent years, environmental issues have become controversial, and policymakers are discovering new predictors of carbon emissions. Some economists/researchers have advocated for fiscal decentralization to improve the quality of the environment by offering more financial authority to provincial/local and sub-national governments. Therefore, this work aims to inspect the effect of fiscal decentralization on economic growth and environmental quality in India by taking data from 1996 to 2021. This work applies both ARDL and NARDL econometric models for empirical examination. The findings of this study suggest that expenditure decentralization has asymmetric long-term and short-term consequences on economic growth, and carbon emission in India. The result of the asymmetric ARDL model also indicates that positive and negative shock in expenditure decentralization contrarily affects economic growth and carbon emission. Moreover, the positive and negative shock in revenue decentralization helps in reducing carbon emissions both in the long run and short run in India. These outcomes are useful for policy analysis from the Indian economic policy perspective. The study also laid out potential outcomes that may benefit India’s local governments and central government in resolving the issues of economic growth and environmental degradation.