THE IMPACT OF FISCAL POLICY ON CO2 EMISSIONS: A MULTI-GROUP ANALYSIS BY NATIONAL INCOME USING THE GMM MODEL

Abstract

This paper investigates the differences in the impact of fiscal policy on CO₂ emissions reduction across countries with varying income levels during both the COVID-19 period and the preceding years. The authors employ the GMM method for analysis, using secondary data collected from the World Bank and the Sustainable Development Report 2024 by Sachs et al. (2024), covering 35 countries from 2015 to 2023. The findings reveal that the influence of fiscal policy on CO₂ emissions differs across country income groups. High-income countries tend to implement environmental investment policies early, while lower-middle-income countries, although they have integrated environmental considerations into their post-COVID-19 economic recovery packages, still need to enhance monitoring mechanisms and budget allocation for green development. As a lower-middle-income country, Vietnam should draw lessons from higher-income nations to improve its policy framework and accelerate progress toward achieving sustainable environmental goals.