The Indirect effect of fiscal policy on environment quality in Developing Countries: PSTR approach

The aim of this study is to compare the threshold effects of fiscal policy on co₂ emission for a panel of developing countries during the period 1990-2014. The panel smooth transition regression model (PSTR) is used for this purpose that is well proper for heterogeneous panel data. The government size used as the transition variable. The results show that there is a non-linear relationship between the explanatory variables and the dependent variable and relationship between energy consumption, population, GDP per capita and co₂ emission indirectly is affected by government size. Estimated threshold value of transition variable is equal 2.0052 and the slope parameter is equal 14.53 that contains only one transition function and only one threshold value. In the first regime, Energy consumption, population and GDP per capita have a positive impact on co₂ emission. In the second regime that the amount of government size is greater than threshold value, positive impact of Energy consumption and population on dependent variable have been Intensified. In this regime the effect of GDP per capita on co₂ emission is positive but its impact is less than before.