Fiscal Subsidies and Environmental Sustainability: What does the Cross-country Empirical Estimates Suggest?

A number of developed as well as developing countries provide subsidies to domestic players, leading to overproduction and over-exploitation of natural resources, which pose a serious threat to environmental sustainability. The analysis in this article attempts to understand the role of government budgetary subsidies on the overall environmental performance index through panel data model estimation for a set of 74 countries over an 11-year period (2000–2010). The empirical findings confirm the theoretical prediction that subsidies lead to environmental degradation, which is of particular concern for developing countries.