The Role of Fiscal Policy and Monetary Policy in Environmental Degradation in Indonesia

Didin Muhafidin

Abstract


This study pores over the significance of Fiscal policy and monetary policy that’s describe the effects on environmental issues. With the help of multiple linearregression, we found out the result that clearly explains the impact of fiscal and monetary policy on environmental issues like CO2 emission. We have used three variables, i.e., GDP, exchange rate, and interest rate with CO2 emission. For considering the possible finding on the impact of fiscal and monetary policy according to the pollution sources, we can also distinguish in between the consumptions and productions that are generated by CO2 emissions. The emission of CO2 and that isaffected by an increase in the interest rate, and exchange rate and also GDP contributes the great role in affected the environmental issues. The results of ARDL bound testing confirm a strong relationship between fiscal policy, monetary policy economic growth, and CO2 emission in Indonesia. The long-run coefficient further confirms that fiscal and monetary policy are still in phase to enhance the environmental degradation in Indonesia. However, the government should pay extra attention to introduce some innovation in the domain of technology while formulating fiscal policies. 

Keywords: Fiscal policy, Monetary policy, environmental degradation, Indonesia.

JEL Classifications:  O13, O44, Q5

DOI: https://doi.org/10.32479/ijeep.9586


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