Abstract

Using annual Nigerian data (1981–2023), this study examines the long‑run and short‑run nexus between climate change and fiscal policy, with climate change proxied by per‑capita carbon dioxide emissions excluding land‑use change (World Development Indicators) and fiscal policy proxied by the general government consumption share of GDP and net taxes on products (Central Bank of Nigeria Statistical Bulletin). Given the presence of structural change in Nigeria’s macro‑fiscal environment, we combine break‑robust unit‑root testing (Zivot–Andrews) with the autoregressive distributed lag (ARDL) bounds approach to cointegration and a nonlinear ARDL (NARDL) specification that allows asymmetric fiscal shocks. Unit‑root tests indicate that the variables are integrated of order one, and bounds tests strongly support cointegration. In the baseline ARDL, the estimated error‑correction term is negative and statistically significant (–1.264), implying rapid adjustment to the long‑run equilibrium after shocks. Long‑run elasticities suggest that a higher government consumption share is associated with lower emissions. In contrast, a higher net‑tax share is associated with higher emissions, consistent with Nigeria’s oil‑linked tax base and the weak environmental content of most taxes. The NARDL results reveal important asymmetry: positive fiscal expansions (increases in the government consumption share) significantly reduce emissions in the long run, while fiscal contractions have smaller and statistically weaker effects. Dynamic multipliers confirm convergence to the estimated long‑run effects within a decade. Robustness checks using dynamic ordinary least squares support the emissions‑reducing role of government spending. The findings underscore the need to re‑orient fiscal policy toward climate‑compatible public spending, remove distortionary fossil‑fuel subsidies, and mainstream climate risks into Nigeria’s medium‑term fiscal framework.

Keywords: Nigeria; climate change; fiscal policy; CO2 emissions; ARDL; nonlinear ARDL; structural breaks; CBN Statistical Bulletin; World Development Indicators.

References

Andersson, J. J. (2019). Carbon taxes and CO₂ emissions: Sweden as a case study. American Economic Journal: Economic Policy, 11(4), 1–30. https://doi.org/10.1257/pol.20170144

Ang, J. B. (2007). CO₂ emissions, energy consumption, and output in France. Energy Policy, 35(10), 4772–4778.

Ang, J. B. (2008). Economic development, pollutant emissions and energy consumption in Malaysia. Journal of Policy Modelling, 30(2), 271–278.

Apergis, N., & Payne, J. E. (2010). The emissions, energy consumption, and growth nexus: Evidence from the Commonwealth of Independent States. Energy Policy, 38(1), 650– 655.

Bayer, P., & Aklin, M. (2020). The European Union Emissions Trading System reduced CO₂ emissions despite low prices. Proceedings of the National Academy of Sciences, 117(16), 8804–8812.

Becerra, O., Cavallo, E., & Noy, I. (2014). Foreign aid in the aftermath of large natural disasters. Review of Development Economics, 18(3), 445–460.

Best, R., Burke, P. J., & Jotzo, F. (2020). Carbon pricing efficacy: Cross-country evidence. Environmental and Resource Economics, 77, 69–94.

Burke, M., Hsiang, S. M., & Miguel, E. (2015). Global non-linear effect of temperature on economic production. Nature, 527, 235–239.

Cavallo, E., Galiani, S., Noy, I., & Pantano, J. (2013). Catastrophic natural disasters and economic growth. Review of Economics and Statistics, 95(5), 1549–1561.

Central Bank of Nigeria. (2024). 2023 statistical bulletin: Real sector [Excel workbook]. Central Bank of Nigeria.

Dell, M., Jones, B. F., & Olken, B. A. (2012). Temperature shocks and economic growth: Evidence from the last half century. American Economic Journal: Macroeconomics, 4(3), 66–95.

Dinda, S. (2004). Environmental Kuznets curve hypothesis: A survey. Ecological Economics, 49(4), 431–455.

Fomby, T., Ikeda, Y., & Loayza, N. V. (2013). The growth aftermath of natural disasters. Journal of Applied Econometrics, 28(3), 412–434.

Fredriksson, P. G., & Millimet, D. L. (2002). Strategic interaction and the determination of environmental policy across U.S. states. Journal of Urban Economics, 51(1), 101–122.

Grossman, G. M., & Krueger, A. B. (1995). Economic growth and the environment. Quarterly Journal of Economics, 110(2), 353–377.

Halkos, G., & Paizanos, E. (2013). The effect of government expenditure on the environment: An empirical investigation. Ecological Economics, 91, 48–56.

Hsiang, S. M., & Jina, A. S. (2014). The causal effect of environmental catastrophe on long-run economic growth: Evidence from 6,700 cyclones (NBER Working Paper No. 20352). National Bureau of Economic Research.

Intergovernmental Panel on Climate Change. (2021). Climate change 2021: The physical science basis. Cambridge University Press.

Intergovernmental Panel on Climate Change. (2022). Climate change 2022: Impacts, adaptation and vulnerability. Cambridge University Press.

International Monetary Fund. (2019). Fiscal policies for Paris climate strategies: From principle to practice (IMF Policy Paper). International Monetary Fund.

Jalil, A., & Mahmud, S. F. (2009). Environment Kuznets curve for CO₂ emissions: A cointegration analysis for China. Energy Policy, 37(12), 5167–5172.

Kahn, M. E., Mohaddes, K., Ng, R. N. C., Pesaran, M. H., Raissi, M., & Yang, J.-C. (2019). Long-term macroeconomic effects of climate change: A cross-country analysis (IMF Working Paper No. 19/215). International Monetary Fund.

Lin, B., & Li, X. (2011). The effect of carbon tax on per capita CO₂ emissions. Energy Policy, 39(9), 5137–5146.

Lis, E., & Nickel, C. (2010). The impact of extreme weather events on budget balances (ECB Working Paper No. 1057). European Central Bank.

López, R., Galinato, G. I., & Islam, A. (2011). Fiscal spending and the environment: Theory and empirics. Journal of Environmental Economics and Management, 62(2), 180–198.

Martin, R., de Preux, L. B., & Wagner, U. J. (2014). The impact of a carbon tax on manufacturing: Evidence from microdata. Journal of Public Economics, 117, 1–14.

Melecky, M., & Raddatz, C. (2011). How do governments respond after catastrophes? Natural- disaster shocks and the fiscal stance (World Bank Policy Research Working Paper No. 5564). World Bank.

Narayan, P. K., & Narayan, S. (2010). Carbon dioxide emissions and economic growth: Panel data evidence from developing countries. Energy Policy, 38(1), 661–666.

Noy, I. (2009). The macroeconomic consequences of disasters. Journal of Development Economics, 88(2), 221–231.

Noy, I., & Nualsri, A. (2011). Fiscal storms: Public spending and revenues in the aftermath of natural disasters. Environment and Development Economics, 16(1), 113–128. https://doi.org/10.1017/S1355770X1000046X

Odugbesan, J. A., & Adebayo, T. S. (2020). The symmetrical and asymmetrical effects of foreign direct investment and financial development on carbon emission: Evidence from Nigeria. SN Applied Sciences, 2, Article 1982. https://doi.org/10.1007/s42452-020- 03817-5

Pao, H.-T., & Tsai, C.-M. (2010). CO₂ emissions, energy consumption and economic growth in BRIC countries. Energy Policy, 38(12), 7850–7860.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.

Pigou, A. C. (1920). The economics of welfare. Macmillan.

Shahbaz, M., Lean, H. H., & Shabbir, M. S. (2012). Environmental Kuznets curve hypothesis in Pakistan: Cointegration and Granger causality. Renewable and Sustainable Energy Reviews, 16(5), 2947–2953.

Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In R. C. Sickles & W. C. Horrace (Eds.), Festschrift in honor of Peter Schmidt: Econometric methods and applications (pp. 281–314). Springer.

Skidmore, M., & Toya, H. (2002). Do natural disasters promote long-run growth? Economic Inquiry, 40(4), 664–687.

Stern, N. (2006). The economics of climate change: The Stern review. Cambridge University Press.

Stock, J. H., & Watson, M. W. (1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica, 61(4), 783–820.

Toya, H., & Skidmore, M. (2007). Economic development and the impacts of natural disasters. Economics Letters, 94(1), 20–25.

World Bank. (2022). State and trends of carbon pricing 2022. World Bank.

World Bank. (2025). CO₂ emissions excluding LULUCF per capita (t CO₂e/capita) [Data set]. World Development Indicators.

Zivot, E., & Andrews, D. W. K. (1992). Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis. Journal of Business & Economic Statistics, 10(3), 251–270.

Zubair, A. O., Samad, A. R. A., & Dankumo, A. M. (2020). Does gross domestic income, trade integration, FDI inflows, GDP, and capital reduce carbon emissions in Nigeria? Current Research in Environmental Sustainability, 2, Article 100009. https://doi.org/10.1016/j.crsust.2020.100009

14173 Northwest Fwy

Unit #2016

Houston, TX 77040

Connect

Inspire

info@lemmybrooksjournal.com

+1-281 236 7392

© 2024. All rights reserved.

Address