Budget deficit and CO₂ emissions in Morocco: An asymmetric NARDL-based analysis

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Type of the article: Research ArticleAbstractIn emerging economies, the integration of environmental considerations into fiscal policy analysis has emerged as a priority of sustainable development strategies. This paper seeks to investigate the asymmetric short- and long-term impacts of the budget deficit on CO₂ emissions per capita in Morocco from 1974 to 2022. A nonlinear ARDL model is employed to identify asymmetric fiscal dynamics over the period under study. The estimation results indicate that, in the short run, an increase in the budget deficit immediately and significantly reduces CO₂ emissions per capita (−0.0046; p < 0.05), while the delayed effect of this increase significantly increases emissions in the following period (0.0068; p < 0.05), revealing opposing dynamics and instability in the short-term adjustment process. Conversely, the immediate and delayed effects of negative changes in the deficit do not exert statistically meaningful short-run effects (p > 0.10). In the long run, both increases and decreases in the budget deficit reduce emissions (−0.0075; p < 0.05; −0.0171; p < 0.01, respectively), with a stronger effect associated with deficit reductions. The results also show that urbanization significantly reduces emissions (–0.0168; p < 0.05), whereas fossil fuel consumption increases them (0.0003; p < 0.05). In contrast, GDP per capita, along with inward FDI inflows, fails to demonstrate statistical significance over the long-term horizon (p > 0.05). These results underscore the nonlinear and asymmetric nature of the fiscal policy and environmental quality nexus, suggesting that prudent budget management can promote sustainable environmental outcomes.