A Study of Environmental Degradation in Turkey and its Relationship to Oil Prices and Financial Strategies: Novel Findings in Context of Energy Transition

Abstract

The current empirical literature ignores the possible influence of oil prices on environmental degradation through fiscal policy instruments. Contributing to the literature, this study explores the influence of oil price on the environmental degradation in Turkey through fiscal policy instruments, using a novel methodology of the bootstrap ARDL approach. The FMOLS, CCR, DOLS, and ARDL models are used to examine the long-run linkage among the tested variables. The findings from estimating models demonstrated that government expenditures positively affected environmental degradation in Turkey. In contrast, the taxation revenues negatively affected the environmental degradation. Furthermore, the empirical outcomes affirm that oil prices have a powerful effect on the levels of Turkey’s environmental pollution through taxation revenues, energy, and GDP factors. Therefore, the study suggests that the Turkish policymakers should design policies to avoid any undesirable impacts of the spillover effects of the oil price on the environment using fiscal policy channels. In this sense, the government in Turkey should design a framework that includes financial incentives such as low taxation rates on green energy investment. In addition, the policy markets in Turkey should start to use the carbon tax policy, which is one of the most efficient tools to reduce environmental pollution.