How Can Fiscal Policy Be Designed to Mitigate Climate Change, Reduce Income Inequality, and Promote Economic Growth? A Case Study for Turkiye

Abstract

This chapter explores the potential of fiscal policy to serve as a multidimensional tool in addressing climate change, reducing income inequality, and promoting economic growth in Turkiye. Employing a Structural Vector Autoregression (SVAR) model, the analysis incorporates macroeconomic and sectoral emissions data to investigate the dynamic relationships between environmental taxes, sectoral CO2 emissions, inequality, and output. The findings suggest that while environmental taxation significantly reduces emissions, particularly in the industrial and transportation sectors, its redistributive effects on income inequality remain limited. The study highlights the need for complementary social spending and progressive reforms to ensure a just and sustainable green transition. Policy implications are derived to inform a fiscal framework that aligns environmental and socio-economic goals.