Green Fiscal Policies, Innovation, and Financial Capacity: Em-pirical Evidence from the G7

Abstract

This study investigates the dynamic interplay between economic growth, environmental taxation, technological innovation, renewable energy deployment, and financial capacity (CF) in G7 economies over the period 1995–2023. Employing a combination of parametric and non-parametric panel data methods, including the Common Correlated Effects Mean Group (CCEMG) estimator and local linear time-varying coefficient models with wild bootstrap, we capture both long-run relationships and country-specific heterogeneities. The results reveal that economic growth generally supports CF, while environmental taxes and technological innovation exhibit time-varying effects. Renewable energy adoption and financial development significantly enhance CF, highlighting the importance of integrating sustainable energy policies and innovative technologies in advanced economies. These findings contribute to the literature by providing robust evidence on how economic, fiscal, and technological factors jointly shape financial capacity, offering valuable insights for policymakers seeking to balance economic growth with financial sustainability.