Nguyen, My-Linh Thi; Ho, Thi Lam
A icle
Do iscal policy and economic g ow h imp o e o ha m he
en i onmen ? An empi ical analysis wi h a Bayesian app oach and
h eshold es ima ion in one o he eme ging and g ow h-leading
economies
Cogen Economics & Finance
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Nguyen, My-Linh Thi; Ho, Thi Lam (2024) : Do iscal policy and economic g ow h
imp o e o ha m he en i onmen ? An empi ical analysis wi h a Bayesian app oach and h eshold
es ima ion in one o he eme ging and g ow h-leading economies, Cogen Economics & Finance,
ISSN 2332-2039, Taylo & F ancis, Abingdon, Vol. 12, Iss. 1, pp. 1-20,
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Do fiscal policy and economic g ow h imp o e
o ha m he en i onmen ? An empi ical analysis
wi h a Bayesian app oach and h eshold
es ima ion in one o he eme ging and g ow h-
leading economies
My-Linh Thi Nguyen & Thi Lam Ho
To ci e his a icle: My-Linh Thi Nguyen & Thi Lam Ho (2024) Do fiscal policy and economic
g ow h imp o e o ha m he en i onmen ? An empi ical analysis wi h a Bayesian app oach
and h eshold es ima ion in one o he eme ging and g ow h-leading economies, Cogen
Economics & Finance, 12:1, 2408271, DOI: 10.1080/23322039.2024.2408271
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ENVIRONMENTAL ECONOMICS & SUSTAINABILITY | RESEARCH ARTICLE
Do iscal policy and economic g ow h imp o e o ha m he
en i onmen ? An empi ical analysis wi h a Bayesian app oach and
h eshold es ima ion in one o he eme ging and g ow h-leading
economies
My-Linh Thi Nguyen and Thi Lam Ho
Uni e si y o Finance –Ma ke ing (UFM), Ho Chi Minh Ci y, Vie nam
ABSTRACT
As one o he Eme ging and G ow h-Leading Economies (EAGLES), Vie nam is main-
aining apid economic de elopmen a he cos o en i onmen al deg ada ion.
Howe e , he impac o economic g ow h and he ole o iscal policy ools in
Vie nam’s pollu ion equa ion emains unclea . This s udy uses a Bayesian app oach
and h eshold es ima ion o quan i a i ely assess he ela ionship be ween economic
g ow h, iscal policy ools, and en i onmen al deg ada ion in Vie nam om 1990 o
2021. The esul s indica e ha ools o he iscal policy signi ican ly con ibu e o
en i onmen al deg ada ion, wi h go e nmen expendi u e ha ing a g ea e impac
han axa ion. Economic g ow h exhibi s a U-shaped ela ionship wi h deg ada ion,
implying he exis ence o an in e ed En i onmen al Kuzne s Cu e (EKC) hypo hesis
in a ansi ional economy. In he ea ly s ages o Vie nam’s de elopmen , cha ac e ized
by an ag icul u al economy, economic g ow h posi i ely a ec ed he en i onmen .
Howe e , economic g ow h exace ba es en i onmen al deg ada ion in he p e-indus-
ializa ion and indus ializa ion phases. Diagnos ic es s a e also applied o con i m
he eliabili y and alidi y o he empi ical es ima es, p o iding aluable insigh s o
p oposed policy implica ions in he s udy.
IMPACT STATEMENT
This s udy o e s c i ical insigh s in o he ela ionship be ween economic g ow h, iscal
policy, and en i onmen al deg ada ion in Vie nam, an Eme ging and G ow h-Leading
Economy (EAGLE). By applying ad anced Bayesian echniques and h eshold es ima-
ion, he esea ch highligh s he signi ican ole o iscal policy ools—pa icula ly go -
e nmen expendi u e—in con ibu ing o en i onmen al deg ada ion. The disco e y o
a U-shaped ela ionship be ween economic g ow h and en i onmen al impac sup-
po s he in e ed En i onmen al Kuzne s Cu e (EKC) hypo hesis in Vie nam’s ansi-
ional economy. These indings emphasize he need o a ge ed iscal e o ms o
balance economic g ow h wi h en i onmen al sus ainabili y, p o iding a aluable
ounda ion o policymake s o mi iga e en i onmen al ha m du ing Vie nam’s
ongoing indus ializa ion.
ARTICLE HISTORY
Recei ed 31 July 2024
Re ised 14 Sep embe 2024
Accep ed 19 Sep embe 2024
KEYWORDS
Bayesian; iscal policy; EKC;
en i onmen ; economic
g ow h
JEL CODE
C11; C24; E62; Q53; Q56
SUBJECTS
Economics; Finance;
En i onmen al Economics
1. In oduc ion
En i onmen al deg ada ion and clima e change a e p essing issues in mos coun ies’delibe a ions. This
is pa icula ly se ious in ansi ioning and de eloping coun ies wi h apidly inc easing popula ion, high
u baniza ion a es, and in ense indus ializa ion p ocesses. Mo eo e , he p oduc ion pa e ns in hese
coun ies hea ily ely on ene gy, p ima ily ossil uels. I is widely ecognized ha he use o ossil uels
such as oil and na u al gas plays a signi ican ole in ai pollu ion, poses heal h isks o humans, and
con ibu es o ai pollu ion (K is om & Rie a, 1996). Gi en he widesp ead and p o ound nega i e
CONTACT Thi Lam Ho [email p o ec ed] Uni e si y o Finance –Ma ke ing (UFM), Ho Chi Minh Ci y, Vie nam
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2408271
h ps://doi.o g/10.1080/23322039.2024.2408271
impac s o en i onmen al pollu ion, he go e nmen s o hese coun ies need o implemen policies o
con ol ha m ul emissions.
Vie nam is one o he EAGLES,
1
wi h consis en ly high annual economic g ow h a es compa ed o
he egion and he wo ld. Vie nam is known as one o he mos dynamic economies in Sou heas Asia.
Vie nam main ained a high economic g ow h a e, a e aging 6.81% om 2016 o 2019 In 2018 and
2019, Vie nam’s GDP eached 7.08% and 7.02%, espec i ely. Despi e being a ec ed by COVID-19,
Vie nam’s GDP g ow h s ill eached 2.91% in 2020. The high economic g ow h a e has also pu signi i-
can p essu e on he en i onmen due o was e gene a ed om economic de elopmen , indus ializa-
ion, and u baniza ion. In 2018, Vie nam anked 159 h ou o 180 coun ies in ai quali y. Acco ding o
he s a is ics om he G eenhouse Gas Emissions Repo submi ed o he Uni ed Na ions F amewo k
Con en ion on Clima e Change (UNFCCC) and he Wo ld Resou ces Ins i u e (WRI) o he Uni ed S a es,
Vie nam’s pe capi a emissions anked 125 h in he wo ld a 3.1 ons o CO2 pe pe son. App oxima ely
60,000 dea hs each yea a e ela ed o ou doo and indoo ai pollu ion. Fu he mo e, ai pollu ion
a ec s he de elopmen o he ne ous sys em and cogni i e abili ies o child en. Child en exposed o
high le els o ai pollu ion a e a a highe isk o de eloping ch onic diseases in he u u e. The Global
Bu den o Disease S udy 2019
2
also iden i ied ai pollu ion as he i h leading cause o a ali ies and dis-
eases in Vie nam, ollowing o he ac o s, such as hype ension, diabe es, smoking, and alcohol use.
Acco ding o a Wo ld Bank epo in 2016,
3
he global economic cos o ai pollu ion is billions o dolla s
annually, wi h labo p oduc i i y losses and p ema u e dea hs ela ed o ai pollu ion amoun ing o
US$225 billion. I is e iden ha en i onmen al pollu ion has become one o he mos challenging issues
in de eloping and ansi ioning coun ies like Vie nam. Pollu ion can a ec he mos ulne able popula-
ion g oups in Vie nam and pose a h ea o he achie emen s made in de elopmen .
In he nex s age o economic de elopmen s a egy, Vie nam has se a long- e m ision o balanced
and inclusi e g ow h, based on ensu ing he ha mony be ween economic g ow h, social de elopmen ,
en i onmen al p o ec ion, and clima e change adap a ion. This demons a es he Vie namese go e n-
men ’s pa icula conce n o sus ainable de elopmen , aiming o a balance be ween economic g ow h
and en i onmen al quali y. The Vie namese go e nmen has also aken policy ac ions o comba en i -
onmen al pollu ion and clima e change; acco dingly, iscal policy ools including axa ion and go e n-
men expendi u e play an impo an ole. Go e nmen spending on he en i onmen and clima e ac ion
accoun s o an a e age o 1% o 1.5% o he o al go e nmen expendi u e. Re enues om en i on-
men al p o ec ion axes also make posi i e con ibu ions o he s a e budge e enues and help egula e
en i onmen al quali y in Vie nam. Speci ically, he a io o en i onmen al p o ec ion ax e enues o
o al s a e budge e enues has been con inuously inc easing, eaching 2.71% in 2015, 3.61% du ing he
pe iod o 2016–2019, 3.93% in 2020 and 4% in 2021 (Gene al S a is ics O ice o Vie nam, 2022).
Howe e , o he bes knowledge o he au ho s, he e a e s ill no s udies e alua ing he impac o is-
cal policy, especially he impac o axes, on en i onmen al pollu ion in Vie nam. Fu he mo e, p e ious
s udies mainly ocused on examining he impac o economic g ow h, o eign di ec in es men in lows,
o ade openness on he en i onmen h ough equency eg ession me hods. Howe e , hese me hods
ha e a signi ican d awback in ha he accu acy o he model hea ily elies on he numbe o obse a-
ions in he sample. Meanwhile, a he na ional le el, ob aining a la ge sample size is challenging. This
s udy employs a new analy ical amewo k –Bayesian and h eshold eg ession. The Bayesian me hod
has he ad an age o es ima ing eg ession esul s in he o m o p obabili y dis ibu ions, which applies
o small da a samples and enhances he obus ness o he es ima ion esul s (McNeish, 2016).
Addi ionally, using he Me opolis-Has ings algo i hm o cons uc a Ma ko Chain Mon e Ca lo (MCMC)
and in e p e ing he esul s as p obabili y dis ibu ions o pa ame e alues helps o e come he limi a-
ions o adi ional eg ession me hods such as au oco ela ion, imbalanced da a, endogenei y, and he -
e oscedas ici y (Ram
ı ez Hassan & Mon oya Bland
on, 2019). Meanwhile, wi h h eshold eg ession, we
can de ec any non-linea ela ionships among he esea ch a iables and p o ide a mo e de ailed and
comp ehensi e unde s anding o he impac o iscal policy ools and economic g ow h on en i onmen-
al pollu ion.
This s udy e alua es iscal policy’s impac on he en i onmen and eexamines he adeo ela ion-
ship be ween economic g ow h and en i onmen al pollu ion in Vie nam acco ding o he en i onmen al
Kuzne s cu e hypo hesis. I seeks o add ess wo cen al ques ions: (1) Wha a e he e ec s o iscal
2 M.-L. THI NGUYEN AND T. L. HO
policy and economic g ow h on en i onmen al deg ada ion in Vie nam? and (2) Is he e an income
h eshold a which he in luence o economic g ow h on en i onmen al pollu ion shi s? By explo ing
hese ques ions, he esea ch p o ides aluable insigh s o policymake s, helping hem e ine policies,
and encou ages businesses and consume s o adap hei p ac ices o achie e sus ainable and e ec i e
g ow h.
This s udy makes signi ican con ibu ions bo h heo e ically and p ac ically. Theo e ically, by applying
Bayesian and h eshold es ima ion echniques, ensu ing he eliabili y o esul s e en wi h smalle da a
samples, ou s udy enhances he unde s anding o he in e play be ween iscal policy, economic g ow h,
and en i onmen al ou comes in Vie nam. Fi s ly, i e eals ha axa ion, while in ended o add ess ex e -
nali ies, can pa adoxically exace ba e pollu ion by discou aging g een echnology in es men s and
encou aging in o mal economic ac i i ies. This insigh challenges he adi ional iew ha highe axes
unequi ocally imp o e en i onmen al ou comes. Addi ionally, he esea ch unco e s a nonlinea ela ion-
ship be ween economic g ow h and en i onmen al pollu ion, wi h dis inc b eakpoin s indica ing a y-
ing impac s a di e en le els o GDP pe capi a. Speci ically, while low-income economies may
expe ience educed pollu ion, indus ializa ion and high-income g ow h phases co ela e wi h inc eased
en i onmen al p essu e. These indings p o ide a mo e comp ehensi e iew o he complex dynamics
be ween iscal policies, economic de elopmen , and en i onmen al quali y. P ac ically, he indings p o-
ide ac ionable insigh s o adjus ing iscal policies o mi iga e en i onmen al deg ada ion while p omo -
ing economic g ow h.
2. Li e a u e e iew
2.1. Fiscal policy and en i onmen al pollu ion
Ensu ing en i onmen al quali y is one o he undamen al p e equisi es o sus ainable economic g ow h
(Pos ula & Radecka-Mo oz, 2020). Go e nmen s in many coun ies ha e used iscal policy o imp o e he
mobiliza ion and alloca ion o unds, aiming o s abilize he na ional inancial sys em and p o ec he
en i onmen . Fiscal policy plays a c ucial ole in add essing global challenges and ansi ioning o a
comp ehensi e g een economy. By e lec ing ex e nali ies in p ices, adjus ing go e nmen expendi u e
owa d en i onmen al objec i es, inc easing income, c ea ing iscal space o g een in es men s, and
implemen ing wide- anging iscal e o ms, such policies can suppo he Sus ainable De elopmen Goals
(SDGs) and he Pa is Clima e Ag eemen . Fiscal policy can di ec ly in luence he beha io s o indi iduals
and businesses owa d he en i onmen , he eby imp o ing en i onmen al quali y and educing pollu-
ion le els.
Fiscal policy can be unde s ood as go e nmen al in e en ions h ough e icien mobiliza ion and allo-
ca ion o inancial esou ces o achie e economic and social g ow h objec i es, pa icula ly ocusing on
en i onmen al p o ec ion (Pos ula & Radecka-Mo oz, 2020) and p omo ing sus ainable economic g ow h
(Nguyen & Bui, 2022; Nguyen e al., 2023; Ramey, 2011). The main ools o iscal policy a e go e nmen
spending and axa ion. Cu en ly, mos coun ies wo ldwide a e ocusing on he imp o emen in he
quali y o economic g ow h, wi h an emphasis on he equilib ium be ween en i onmen al p o ec ion
and economic g ow h. This balance is a c ucial p e equisi e o achie ing long- e m sus ainable eco-
nomic g ow h, and iscal policy plays an impo an ole in ealizing his goal. A well-designed iscal pol-
icy inc eases inancial esou ces o mee en i onmen al p o ec ion needs, he eby s imula ing
sus ainable economic g ow h (Po e & Linde, 1995). Fiscal policy also plays a signi ican ole in educing
de o es a ion and o es - ela ed emissions. While i is no s aigh o wa d o cope wi h his en i onmen-
al issue h ough iscal ools such as axes, ines, and ees, e ec i e managemen and policies ha
enhance awa eness o op imal land use can help achie e he objec i es o educing de o es a ion and
clima e change (Cadman e al., 2019).
Va ious empi ical s udies ha e assessed he impac o iscal policy on en i onmen al p o ec ion, p i-
ma ily ocusing on he e ec s o go e nmen spending. Fo ins ance, s udies by Dholakia e al. (2013);
Mo ley (2012), and Be naue and Koubi (2009) ha e examined he impac o go e nmen spending on
en i onmen al p o ec ion. Abid (2017) and Gholipou and Fa zanegan (2018) sugges ha go e nmen
spending con ibu es o limi ing g eenhouse gas emissions in Eu ope bu has a negligible impac in he
COGENT ECONOMICS & FINANCE 3
Middle Eas and No h A ica due o ine icien alloca ion. Addi ionally, L
opez and Palacios (2014) and
Adewuyi (2016) emphasize he impac o go e nmen spending componen s on he en i onmen , indi-
ca ing ha inc easing o al go e nmen spending wi hou changing expendi u e i ems nega i ely a ec s
en i onmen al quali y. Halkos and Paizanos (2013) ound ha go e nmen spending’s impac a ies
based on income le els, wi h highe spending leading o highe CO2 emissions bu po en ially educing
SO2 emissions in lowe -income coun ies.
Se e al s udies ha e also comp ehensi ely assessed he impac o iscal policies, including go e n-
men spending and axes, on en i onmen al quali y. Zah a e al. (2022) and Ike e al. (2020) in es iga ed
he impac o iscal policy on he en i onmen in Pakis an and Thailand, espec i ely, inding a dialec ical
ela ionship be ween en i onmen al deg ada ion and iscal policy. Chan (2020) and Cheng e al. (2024)
explo ed he impo ance o iscal and mone a y policies in s abilizing ai pollu an s and CO2 emissions,
concluding ha iscal policy signi ican ly de e mines ca bon emission s abili y. Iqbal e al. (2022) demon-
s a ed ha iscal decen aliza ion and economic g ow h posi i ely de e mine CO2 emissions, while
enewable ene gy use nega i ely impac s emissions in OECD coun ies.
Angelopoulos e al. (2012) and Kuo e al. (2016) highligh ed he impo ance o ax a ia ions in de e -
mining en i onmen al quali y, wi h Dongyan (2009) indica ing ha e ec i e ax a es and policies can
con ol ca bon emissions. Liu e al. (2017) also ound ha axes a e a c ucial componen o iscal policy
ha p omo es he use o g een ene gy and imp o es en i onmen al quali y. A l o
a and Ko (2023) indi-
ca e ha axa ion is a key ac o de e mining he en i onmen al quali y o OECD coun ies. Cado e
e al. (2020) examined he e ec i eness o Pigou ian axes in EU coun ies. Thei indings indica e ha
highe Pigou ian ax a es e ec i ely educe en i onmen al ex e nali ies and p o ide e idence suppo -
ing he double di idend hypo hesis, sugges ing ha such axes can also lead o addi ional economic
bene i s.
These s udies collec i ely unde sco e he mul i ace ed ole o iscal policy in add essing en i onmen-
al challenges and p omo ing sus ainable economic g ow h, emphasizing he need o well-designed
iscal in e en ions o achie e hese goals.
2.2. Economic g ow h and en i onmen al pollu ion
2.2.1. The en i onmen al Kuzne s cu e (EKC) hypo hesis
The En i onmen al Kuzne s Cu e (EKC) is a heo e ical model illus a ing he inc ease in en i onmen al
deg ada ion and pollu ion du ing he ea ly s ages o economic de elopmen and indus ializa ion.
Howe e , as he economy g ows and eaches a ce ain h eshold o pe capi a income, en i onmen al
quali y begins o imp o e, and pollu ion le els g adually dec ease (see Figu e 1).
Nume ous s udies ha e been conduc ed o e i y he EKC hypo hesis. S e n (2004) explains he
in e se ela ionship o he EKC based on ou economic cha ac e is ics: p oduc ion scale, economic s uc-
u e, inpu changes, and echnological de elopmen .
Figu e 1. The en i onmen al Kunzne s cu e.
Sou ce: Panayo ou (1993).
4 M.-L. THI NGUYEN AND T. L. HO
P oduc ion scale: Theo e ically, a 1% inc ease in p oduc ion scale would esul in a 1% inc ease in
emissions, assuming he inpu -ou pu a io and p oduc ion echnology emain unchanged. Howe e , his
is no always p ac ical, and hus, no all p oduc ion scales can uni o mly apply en i onmen al con ols.
Ou pu mix changes: When a coun y adop s open-doo and in eg a ed policies o boos economic
de elopmen , i o en expe iences a s uc u al shi in sec o s. Ini ially, he economy ends o ansi ion
om ag icul u e o hea y indus y. Du ing his pe iod, mos hea y indus ies a e esou ce-in ensi e and
gene a e signi ican emissions, leading o inc eased en i onmen al pollu ion. Con e sely, in he la e
s ages, he e is a shi om hea y indus y o ligh indus y and se ices, esul ing in educed ene gy
usage and dec eased en i onmen al pollu ion.
Inpu changes: A each s age o economic de elopmen , alongside ad ancemen s in science and
echnology, en i onmen ally iendly inpu s a e in oduced in o p oduc ion p ocesses, eplacing ha m ul
coun e pa s. Fo ins ance, na u al gas eplaces coal. This explains he ini ial inc ease in pollu ion and
emissions du ing he ea ly s ages o economic de elopmen , which g adually dec eases as he economy
eaches a highe le el o de elopmen .
Technological de elopmen : Ad anced economies ha e he esou ces o esea ch and inno a e ech-
nologies ha enhance p oduc i i y and ou pu , wi h unchanged o e en educed inpu s. Consequen ly,
he amoun o was e pe uni o ou pu ends o dec ease. Fu he mo e, hese echnological ad ance-
men s a e delibe a ely designed o educe emissions du ing ope a ion, signi ican ly con ibu ing o
en i onmen al imp o emen .
2.2.2. T adeo be ween economic g ow h and en i onmen al deg ada ion
The ela ionship be ween economic g ow h and en i onmen al deg ada ion is deba ed om a ious pe -
spec i es. Figu e 2 p o ides an o e iew o di e en iews.
The ‘new oxics’ iew claims ha cu en pollu an s end o dec ease due o echnological imp o e-
men s o subs i u e inpu s accompanying economic g ow h, and he new pollu an s eplacing hem
end o inc ease. These include ca cinogenic chemicals, ca bon dioxide, e c. As he olde pollu an s a e
cleaned up, new ones eme ge, so o e all en i onmen al impac is no educed.
The ‘‘ ace o he bo om’’ iew posi s ha emissions we e educed in de eloped coun ies by ou -
sou cing di y p oduc ion o de eloping coun ies. These coun ies will ind i ha de o educe emis-
sions. Howe e , he p essu e o globaliza ion may also p eclude u he igh ening o en i onmen al
egula ion in de eloped coun ies and may e en esul in i s loosening in he name o compe i i eness.
The ‘ e ised EKC’ iew does no ejec he in e ed U-shape cu e bu sugges s i is shi ing down-
wa d and o he le o e ime due o echnological change. A ow e al. (1996) poin ed ou he isk ha
small changes could cause se e e damage, implying ha ocusing solely on economic g ow h o
imp o e he en i onmen wi hou conside ing o he po en ial impac ac o s may lead o coun e -
e ec s. Fo ins ance, in he con ex o biodi e si y, no expendi u e would be able o es o e ex inc spe-
cies, and can only ocus on conse ing exis ing di e si y.
Figu e 2. The en i onmen al Kunzne s cu e: al e na i e iews.
Sou ce: S e n (2004).
COGENT ECONOMICS & FINANCE 5
2.2.3. Empi ical e idence on he impac o economic g ow h on en i onmen al pollu ion
Nume ous s udies ha e explo ed he En i onmen al Kuzne s Cu e (EKC) hypo hesis, which posi s an
in e ed U-shaped ela ionship be ween economic g ow h and en i onmen al quali y. G ossman and
K uege (1991) analyzed he ai quali y and economic g ow h o 42 na ions, e ealing ha SO2 and smoke
emissions ini ially inc eased wi h GDP pe capi a a lowe -income le els. Simila ly, Hol z-Eakin and Selden
(1995) in es iga ed CO2 emissions ac oss 130 coun ies om 1951 o 1986, inding a posi i e co ela ion
be ween CO2 emissions and economic g ow h up o an income u ning poin o $35,428 pe pe son pe
yea . Timmons Robe s and G imes (1997) assessed CO2 emissions o e 30 yea s (1962–1991) ac oss many
coun ies, con i ming an ini ial inc ease in emissions wi h economic de elopmen . Galeo i and Lanza
(1999) analyzed CO2 emissions and economic de elopmen in 110 na ions (1960–1996), obse ing a non-
linea ela ionship in he o m o an in e ed U-cu e. Kau mann e al. (1998) subs i u ed CO2 wi h SO2,
inding a simila in e ed U-cu e ela ionship using a ious modeling echniques. Cole e al. (1997) in es i-
ga ed mul iple en i onmen al indica o s (e.g. ni a es, CH4, u ban was e) in 149 coun ies (1960–1990),
con i ming he EKC hypo hesis o ai pollu an s. Selden and Song (1994) eplica ed G ossman and
K uege ’s s udy wi h an expanded se o en i onmen al a iables, suppo ing he EKC cu e.
The u ning poin and subsequen decline in emissions a highe income le els ha e also been documen ed.
Pao and Tsai (2010) demons a ed he EKC hypo hesis in BRICS coun ies om 1971 o 2005, iden i ying a u n-
ing poin a an income le el o app oxima ely $5,393. Poumany ong and Kaneko (2010), using he STIRPAT
model and da a om 99 coun ies (1975–2010), ound u baniza ion dec eased ene gy consump ion bu
inc eased CO2 emissions in low-income coun ies, and he opposi e in middle- and high-income coun ies.
Ma
ınez-Za zoso and Ma uo i (2011) analyzed CO2 emissions in de eloping coun ies (1975–2003), showing
an in e ed U-shaped ela ionship be ween u baniza ion and emissions. Nasi e al. (2011) iden i ied a quad a ic
ela ionship be ween CO2 emissions and income in Pakis an (1972–2008), a i ming he EKC hypo hesis.
Hi oyuki Taguchi (2012) examined 19 Asian coun ies (1950–2009) using he GMM me hod, con i ming he
in e ed U-shaped ela ionship o SO2 emissions. Wasleka (2014) analyzed 30 coun ies (1960–2050), sugges -
ing many de eloping economies will ansi ion o de eloped s a es, ollowing he EKC pa e n. Kaspe owicz
(2015) e i ied he ela ionship be ween GDP and CO2 emissions in 18 EU coun ies (1995–2012), suppo ing
he EKC hypo hesis. Linh & Lin (2015) s udied 12 populous Asian coun ies, showing ha CO2 emissions began
o decline a an income le el o 8.9341 (loga i hmically adjus ed). Malik e al. (2020)inPakis an(1971–2014) sup-
po ed he EKC hypo hesis using he ARDL and nonlinea ARDL me hods. The g ow h h eshold and he in e se
U-shaped nonlinea ela ionship be ween economic g ow h and en i onmen al pollu ion, as p oposed by he
EKC hypo hesis, a e also obse ed in Asian coun ies (Ho & Ho, 2021;Hoe al.,2024).
Despi e hese suppo i e indings, se e al s udies ha e e u ed he EKC hypo hesis. De B uyn e al. (1998)
ound a posi i e co ela ion be ween CO2, NO2, and SO2 emissions and economic g ow h in ou de eloped
coun ies, a ibu ing emission educ ions o changes in economic s uc u e and echnology. Ag as and Chapman
(1999) highligh ed he signi icance o ene gy p ices in EKC analysis, inding no e idence suppo ing he EKC o
CO2 emissions. He ige e al. (2000) in es iga ed wa e pollu ion in indus ial economies, showing wa e pollu ion
emains unchanged o inc eases wi h income g ow h. Pe man and S e n (2003), using coin eg a ion analysis o
74 coun ies o e 31 yea s, ound no conca e ela ionship be ween GDP and SO2 emissions. Richmond and
Kau mann (2006) asse ed he absence o a u ning poin in he ela ionship be ween economic g ow h and CO2
emissions o bo h OECD and non-OECD coun ies. Luzza i and O sini (2009) ound limi ed applicabili y o he EKC
hypo hesis a bo h global and indi idual coun y scales. Taguchi (2012) demons a ed a end o inc easing CO2
emissions wi h ising income in 19 Asian coun ies. Al-Mulali e al. (2015), using he ARDL app oach in Vie nam
(1981–2011), ound economic g ow h had a posi i e impac on en i onmen al pollu ion, e u ing he EKC hypo h-
esis. Ce in e al. (2024) ound ha economic g ow h inc eases he ecological oo p in in OECD coun ies.
3. Me hodology
3.1. Da a
Annual da a co e ing he yea s be ween 1990 and 2021 has been used in his s udy; The a iables o
he s udy a e he cos incu ed om ca bon dioxide emissions on GDP (CO2) (%), he na u al loga i hm
o cons an GDP pe capi a (EG), popula ion g ow h (POP), and o e all go e nmen spending (GOV) as a
6 M.-L. THI NGUYEN AND T. L. HO
pe cen age o GDP as a i s p oxy o iscal policy (FP) and o e all ax e enues as a pe cen age o GDP
(TAX) and as a second p oxy o FP. Da a o CO2, EG, and POP ha e been ga he ed om he Wo ld Bank
while da a o GOV and TAX ha e been ga he ed om he Vie nam Gene al Depa men o Taxa ion.
We selec ed he esea ch pe iod om 1990 o 2021 o se e al easons: Fi s , his pe iod ma ks Vie nam’s
ansi ion om a cen ally planned economy o a socialis -o ien ed ma ke economy, beginning wi h sig-
ni ican e o ms in 1990. These e o ms spu ed apid economic g ow h h ough policies such as a ac ing
o eign di ec in es men (FDI) and p omo ing indus ializa ion and u baniza ion, which also had no able
en i onmen al impac s due o inc eased indus ial ac i i y and ene gy consump ion. Second, om he
1990s onwa ds, he Vie namese go e nmen implemen ed a ious iscal and en i onmen al policies o con-
ol pollu ion and mi iga e he nega i e en i onmen al e ec s o economic g ow h. This ime ame is su i-
cien o obse e and e alua e he impac o hese policies while p o iding eliable da a on economic and
en i onmen al changes. Thi d, his pe iod aligns wi h heigh ened in e na ional discussions on clima e
change and sus ainable de elopmen . Vie nam’s clima e commi men s, s a ing in he 1990s, including i s
pa icipa ion in he UNFCCC and he Pa is Ag eemen , o e a pe inen con ex o s udying he ela ion-
ship be ween iscal policy and he en i onmen . Finally, we chose o end he esea ch pe iod in 2021
because he e a e o en delays in epo s o go e nmen budge da a and iscal ools due o leng hy
accoun ing p ocesses. By selec ing 2021, we ensu e ha he iscal da a is comple e and accu a ely e lec s
he go e nmen ’s inancial and policy decisions. This ime ame allows o he inclusion o ully audi ed and
upda ed budge in o ma ion, enhancing he eliabili y o ou analysis o iscal policies and hei impac s on
he economy and en i onmen . Thus, he 1990–2021 pe iod acili a es he analysis o signi ican economic
and en i onmen al changes and p o ides aluable empi ical e idence o cu en policy de elopmen .
3.2. Model
This s udy in es iga es he impac o iscal policy and economic g ow h on en i onmen al pollu ion in Vie nam
- one o he EAGLES. Model 1 is buil o achie e he esea ch objec i e. This model no only acili a es he ana-
lysis o iscal policy impac s bu also enables he de e mina ion o he economic g ow h h esholds. Abo e and
below his h eshold, he epe cussions o economic g ow h on en i onmen al pollu ion exhibi a ia ion, hus
essen ially p obing he alidi y o he EKC hypo hesis. Should he exis ence o an economic g ow h h eshold
be subs an ia ed, he subsequen phase in ol es an in ica e es ima ion o he e ec s o economic g ow h
(spanning he p e- and pos - h eshold) on en i onmen al pollu ion. The e o e, Model 1 se es a dual pu pose: i
sc u inizes he implica ions o iscal policy on en i onmen al pollu ion and concu en ly assesses he in luence
o economic g ow h on he same. The model is delinea ed as ollows:
CO2¼ EG,TAX,GOV,POP
ðÞ (1)
Whe e ’EG’ ep esen s economic g ow h, ope a ionalized h ough he na u al loga i hm o G oss Domes ic
P oduc (GDP) pe capi a. The quan i ica ion o en i onmen al pollu ion, deno ed as ’CO2’,isme hodologic-
ally app oached ia he me ic o cos incu ed om ca bon dioxide emissions, exp essed as a pe cen age
ela i e o GDP. The cons uc s o iscal policy a e comp ehensi ely measu ed h ough wo dis inc indica o s:
ax e enue (TAX) and go e nmen expendi u e (GOV). Speci ically, TAX is concep ualized as he p opo ion
o ax e enue o GDP, whe eas GOV encapsula es he a io o go e nmen expendi u e o GDP.
Fu he mo e, popula ion g ow h (POP) assumes a c i ical ole as a con ol a iable wi hin he esea ch models.
This a iable is in eg a ed in o he analy ical amewo k based on he heo e ical and empi ical ounda ions
es ablished by seminal esea ch wo ks, no ably hose o (Halkos & Paizanos, 2013;Lee&Go don,2005). The de i-
ni ions and measu emen me hodologies o hese a iables in Model 1 a e delinea ed wi h p ecision in Table 1.
Table 1. Desc ip ion o a iables.
Va iable name Measu e Sou ce
Economic G ow h EG Na u al loga i hm o cons an GDP pe capi a WDI
En i onmen al Pollu ion CO2 Damage cos o CO2 emissions (% o GDP) WDI
Fiscal policy Taxa ion TAX Tax e enue (% o GDP) WDI
Go e nmen Expendi u e GOV Go e nmen expendi u e (% o GDP) WDI
Con ol Va iable Popula ion G ow h POP Annual G ow h Ra e (%) o To al Popula ion WDI
Sou ce: The au ho s.
COGENT ECONOMICS & FINANCE 7
o was e. Finally, when go e nmen s ocus on p omo ing economic g ow h while igno ing en i onmen-
al p o ec ion measu es, en i onmen al pollu ion will inc ease due o a lack o managemen and con ol.
The e o e, go e nmen spending can con ibu e o inc easing en i onmen al pollu ion h ough in a-
s uc u e and indus ial de elopmen , inc eased use o ossil uels, p omo ion o consump ion and u ban
de elopmen , and lack o en i onmen al egula ion. Go e nmen spending can lead o inc eased pollu-
ion i no s ic ly managed and con olled, especially when economic p io i ies ou weigh en i onmen al
p o ec ion measu es. This inding is consis en wi h Adewuyi (2016); Be naue and Koubi (2009); Halkos
and Paizanos (2013); and Zah a e al. (2022).
4.2.2. Impac o economic g ow h on en i onmen al pollu ion
To in es iga e whe he he impac o economic g ow h on en i onmen al pollu ion is linea o nonlinea ,
we applied Hansen’s h eshold model o iden i y ansi ion h esholds, ollowed by Bayesian eg ession
o assess he impac ac oss di e en h eshold egions. The esul s e eal wo b eakpoin s in he impac
o economic g ow h on en i onmen al pollu ion: he i s a a GDP pe capi a o 394.58 USD and he
second a 2,367.5 USD. Thus, he e is a nonlinea impac o economic g ow h on en i onmen al pollu-
ion. This is consis en wi h he indings om p e ious s udies like Ang (2008) in Malaysia, A ou i e al.
(2012) in MENA coun ies, Hossain (2012) in Japan (Azam e al., 2016; Liang & Yang, 2019; Shu ui e al.,
2019) in Japan, China, and he USA.
The impac o income on en i onmen al pollu ion a ies ac oss di e en h eshold egions.
Speci ically, i GDP pe capi a is equal o o less han 394.58 USD, economic g ow h nega i ely impac s
he en i onmen (-0.1378). Howe e , i GDP pe capi a is be ween 394.58 USD and 2,367.5 USD, he
nega i e impac is lowe (-0.0601). Con e sely, i GDP pe capi a exceeds 2,367.5 USD, economic g ow h
posi i ely impac s he en i onmen (0.1134).
In essence, he impac o economic g ow h on en i onmen al pollu ion o ms a U-shaped cu e. In
cases o U-shaped EKC, o e eliance on a speci ic sec o can lead o emissions, as indica ed by A shed
e al. (2021) and Wang e al. (2021). This inding is consis en wi h p e ious s udies, like Beyene and
Ko osz (2020) in 12 Eas A ican coun ies (1990–2013), A shed e al. (2021) wi h panel da a om 80
coun ies (1990–2017), Dogan and Inglesi-Lo z (2020) in Eu opean coun ies (1980–2014), Wang e al.
(2021) o 198 coun ies (1990–2018), Hassan e al. (2021) o 189 coun ies (1990–2018) and (Shahbaz,
2022) o 11 coun ies (1972–2015).
This can be explained as ollows:
In he ea ly s age, economic g ow h and pollu ion educ ion. A low-income le els, coun ies o en
ocus on ag icul u e and handic a p oduc ion, wi h low le els o esou ce use and pollu ion emissions.
P oduc ion is mainly based on adi ional me hods, causing li le ha m o he en i onmen . Due o he
lack o s ong indus ial de elopmen , he le el o pollu ion om p oduc ion ac i i ies is insigni ican .
Coun ies in he ea ly s ages o de elopmen such as some coun ies in A ica and Asia ha e low le els
o pollu ion because hei economies a e mainly based on ag icul u e and handic a p oduc ion. In
Vie nam, in he ini ial de elopmen phase, Vie nam was a backwa d ag a ian coun y wi h p imi i e p o-
duc ion ools and mos ly handic a s. The main p oduc ion ields we e ag icul u e and li es ock.
Addi ionally, spa se popula ion and abundan o es s and esou ces mean ha economic g ow h du ing
his pe iod did no impac , and e en in luenced en i onmen al quali y posi i ely. In he subsequen p e-
indus ializa ion phase, wi h he ansi ion o a model combining ag icul u e and basic indus ies as well
as he leading ole o ag icul u e, esou ce u iliza ion inc eased. Al hough he impac o economic
g ow h on en i onmen al pollu ion pe sis ed, i s magni ude dec eased. These phases ep esen he bal-
anced g ow h s age as desc ibed by Hassan e al. (2021), who ound ha in economies wi h low CO2
emissions, inc easing alue-added ag icul u e nega i ely impac s CO2 emissions, albei a a low le el. In
high-emission economies, his impac is highe .
The hi d phase is indus ializa ion. In his phase, economic g ow h was p ima ily d i en by hea y
indus ies. Ag icul u e adop ed echnology and machine y, and ossil uel ene gy consump ion, such as
gas and coal, inc eased. A g owing popula ion and apid u baniza ion led o a subs an ial inc ease in
indus ial zones. This phase also wi nessed s ong in e na ional in eg a ion wi h high le els o FDI.
The inc ease in FDI, oge he wi h ad an ages in access o echnology and ad anced echniques, also
exe ed conside able en i onmen al p essu e as de eloped coun ies end o ans e ‘di y’p oduc ion
14 M.-L. THI NGUYEN AND T. L. HO
echnologies o de eloping coun ies like Vie nam h ough in e na ional in es men . A he same ime,
as incomes and li ing s anda ds inc ease, so does he demand o goods and se ices, leading o mo e
p oduc ion and consump ion, pu ing g ea p essu e on he en i onmen . Consequen ly, economic
g ow h in his phase co ela ed wi h inc eased en i onmen al pollu ion. This s age ep esen s o e -
de elopmen acco ding o Hassan e al. (2021).
5. Conclusion
This s udy aims o assess he impac o iscal policy ools on en i onmen al pollu ion and eexamine he
EKC hypo hesis in he con ex o Vie nam. U ilizing da a om he pe iod 1990–2021 and employing
Bayesian h eshold es ima ion me hods, ou esea ch demons a es ha bo h axa ion and public spend-
ing exace ba e en i onmen al deg ada ion. An in e es ing inding is ha economic g ow h has a nonlin-
ea U-shaped impac on en i onmen al pollu ion in Vie nam, which a ies acco ding o he economic
s uc u e a di e en s ages.
The indings o his s udy highligh se e al c i ical policy implica ions. Fi s ly, he posi i e co ela ion
be ween ax e enue and en i onmen al pollu ion unde sco es he need o a ge ed ax policy e o ms.
Taxa ion ensu es he s a e budge e enue; hence, ax policy inno a ions should ocus on inc easing
axes on ac i i ies using non enewable ene gy sou ces o bo h gene a e e enue and guide p oduc ion
owa d en i onmen ally iendly ene gy use, hus mi iga ing en i onmen al impac . Ca bon axes should
also be implemen ed and moni o ed o en o ce s ic e en i onmen al s anda ds.
Rega ding go e nmen spending, he s udy e eals ha inc eased expendi u e con ibu es o highe
en i onmen al pollu ion. The go e nmen should conside educing go e nmen expendi u e o imp o e
en i onmen al quali y. In 2020, public spending on he en i onmen and clima e ac ion cons i u ed only
1.5% o he o al go e nmen expendi u e, equi alen o 25.6 illion VND, mos ly alloca ed o solid and
liquid was e managemen . Hence, budge alloca ions should be es uc u ed o educe unnecessa y ecu -
en expenses and inc ease en i onmen al p o ec ion spending. The go e nmen should encou age
in es men in enewable ene gy echnologies wi hou hinde ing he coun y’s ene gy supply and con-
sump ion. I should also p omo e in es men incen i es in enewable ene gy h ough ax exemp ions
and go e nmen al subsidies. Due o he subs an ial in as uc u al needs o he enewable ene gy sec o ,
long- e m in as uc u e de elopmen plans unded by ca bon ax e enues om ossil uel ene gy use
should be es ablished. Go e nmen budge alloca ions could be di ec ed o ci izens and businesses o
minimize en i onmen al pollu ion, such as iscal suppo o households and businesses using clean
ene gy in consump ion and p oduc ion. In addi ion, s a e budge alloca ions o science and echnology
in en i onmen al p o ec ion, esea ch on clean ene gy echnology, in es men in ene gy-e icien in a-
s uc u e, and en i onmen al p o ec ion should be inc eased o a comp ehensi e impac on en i onmen-
al p o ec ion. Fu he mo e, he go e nmen could edi ec budge alloca ions o a ic in as uc u e
in es men s, public building acquisi ions, and en i onmen ally iendly public anspo a ion echnologies.
The inc ease in s a e budge alloca ions o uni e si ies, esea ch ins i u es, and businesses o ad ance
he applica ion o eco- iendly echnologies in he economy should be aken in o conside a ion.
In e ms o he impac o economic g ow h on en i onmen al pollu ion, ou s udy indica es a
U-shaped cu e. This sugges s ha in an eme ging na ion, economic g ow h no longe educes pollu ion
as i migh in an ag a ian-based economy. On he con a y, g ow h ends o accompany inc eased en i -
onmen al pollu ion when he e is a shi in he economic s uc u e owa d indus ializa ion. This high-
ligh s he iewpoin ha o e - eliance on indus ializa ion can lead o en i onmen al deg ada ion,
especially i he economy al eady has a low en i onmen al quali y. Policymake s in Vie nam, and eme g-
ing coun ies in gene al, should conside his issue when pu suing indus ializa ion policies. They should
p io i ize he de elopmen o ligh indus ies, pa icula ly i he na ional ai quali y index is low. Wha is
mo e, he p ocess o ansi ioning he economy owa d se ices should be gi en mo e a en ion, as se -
ice sec o s ypically ha e less en i onmen al impac . Finally, pu suing he de elopmen o he ag icul-
u al sec o shows inc eased en i onmen al quali y due o i s ole in o ming ca bon sinks. De eloping
sub-sec o s o ag icul u e, including a o es a ion, would cap u e ee CO2 in he a mosphe e.
This s udy has some limi a ions ha should be add essed in u u e esea ch. The analysis ocused p i-
ma ily on he ela ionship be ween iscal policies and en i onmen al ou comes in Vie nam, which may
COGENT ECONOMICS & FINANCE 15
no be gene alizable o o he con ex s wi hou addi ional alida ion. Fu u e s udies should conside a
b oade ange o coun ies o compa e di e en policy impac s and e ec i eness.
Fu he mo e, he s udy iden i ied a U-shaped ela ionship be ween economic g ow h and en i on-
men al pollu ion, indica ing ha economic de elopmen ini ially educes pollu ion bu can la e inc ease
i as indus ializa ion p og esses. Fu u e esea ch should explo e his dynamic u he , examining how
di e en s ages o indus ializa ion and economic de elopmen impac en i onmen al quali y. I would
be bene icial o in es iga e he e ec s o speci ic indus ial sec o s and hei en i onmen al impac s, as
well as he ole o se ice-o ien ed and ag icul u al sec o s in imp o ing en i onmen al condi ions.
Addi ionally, u u e s udies should analyze he long- e m impac s o iscal policies on en i onmen al
quali y and explo e how e ol ing economic s uc u es, such as he ansi ion o a se ice-based econ-
omy o inc eased ocus on sus ainable ag icul u al p ac ices, in luence en i onmen al ou comes. This
app oach will p o ide a mo e comp ehensi e unde s anding o how economic and iscal policies can be
aligned o suppo sus ainable de elopmen and imp o e en i onmen al quali y.
No es
1. The EAGLES a e a g oup o 15 eme ging economies iden i ied by Banco Bilbao Vizcaya A gen a ia (BBVA)
Resea ch, expec ed o ou pace ad anced economies in g ow h and de elopmen . These coun ies, including
China, India, Indonesia, Mexico, Nige ia, he Philippines, I an, Pakis an, Russia, Tu key, Egyp , B azil, Bangladesh,
Malaysia, and Vie nam, play a key ole in global ade and o eign di ec in es men due o hei apid
indus ializa ion and inc easing global in luence.
2. h ps://ghdx.heal hda a.o g/gbd-2019
3. h ps://www.wo ldbank.o g/en/news/p ess- elease/2016/09/08/ai -pollu ion-dea hs-cos -global-economy-225-billion
Acknowledgemen
The au ho s a e suppo ed by he Uni e si y o Finance-Ma ke ing, Vie Nam.
Au ho con ibu ions
Thi Lam Ho: P epa ing and p ocessing da a, W i ing he o iginal d a . My-Linh Thi Nguyen: W i ing, e iewing and
edi ing he inal e sion.
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he au ho (s).
Funding
The au ho s ecei ed no di ec unding o his esea ch.
Abou he au ho s
My-Linh Thi Nguyen is an Associa e P o esso a he Facul y o Banking and Finance, Uni e si y o Finance and
Ma ke ing (UFM), Vie nam. The main a eas o esea ch a e public inance, co po a e inance, he eal es a e ma ke ,
inancial de elopmen , and sus ainable de elopmen . Wi h 20 yea s o expe ience in esea ch and eaching in he
ield o inance, she has published many in e na ional a icles. In addi ion, she has led many minis e ial and p o in-
cial p ojec s in Vie nam, pa icipa ing in p ojec s a he Na ional Founda ion o Science. She is he au ho and coau-
ho o many books including ex books and monog aphs.
Thi Lam Ho is a lec u e a he Uni e si y o Finance - Ma ke ing, Vie nam. He esea ch a eas include Applied
Economics, En i onmen al Economics, Ene gy Economics, Quan i a i e Finance, In e na ional Finance, Mac oeconomics
and Econome ics. He esea ch publica ions link h ps://schola .google.hu/ci a ions?use =TZa2AKIAAAAJ&hl=en.
ORCID
My-Linh Thi Nguyen h p://o cid.o g/0000-0001-7475-2502
Thi Lam Ho h p://o cid.o g/0000-0002-3369-3494
16 M.-L. THI NGUYEN AND T. L. HO
Da a a ailabili y s a emen
All da a o he s udy will be made a ailable by he co esponding au ho upon eques .
Re e ences
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