Fiscal Policy Tools Impact on the Environmental Dimension of Sustainable Development in Iraq (2005-2024): Econometric Modeling Using the ARDL Approach

Abstract

The research aims to measure and analyze the impact of fiscal policy—specifically through public expenditure, public revenue, and fiscal sustainability (represented by the public debt-to-GDP ratio)—on the environmental dimension of sustainable development in Iraq from 2005 to 2024. The study employed advanced econometric modeling based on two primary functions: carbon emissions (LN_CO2) and decertified areas (LN_DES). Utilizing the bounds testing approach for cointegration and the Autoregressive Distributed Lag (ARDL) model, the study yielded several econometric findings. Most notably, it identified a cointegration relationship and a long-term effect linking fiscal policy instruments with environmental variables. Statistical diagnostics indicated a need to adjust for structural stability in both models using a dummy variable (DUM) to account for the severe shocks and distinct structural breaks experienced by the Iraqi economy. Furthermore, the results revealed an econometric anomaly in the desertification function: the error correction term (Coint Eq (-1)) appeared with a positive and statistically significant coefficient. This statistically confirms the loss of an automatic self-correcting mechanism within the Iraqi environment, thereby exacerbating environmental degradation driven by a rentier economic structure fueled by public spending. Consequently, there is an urgent need to adopt financing strategies oriented toward green, environmentally friendly public finance