How effective is government spending on environmental protection in a developing country?

Purpose - The objective of this paper is twofold as follows: first, it explores the relationship between economic growth and the environment in the context of the environmental Kuznets curve (EKC) in Iran, as a semi-industrialized and largest developing economy in the Middle East. Second, it investigates the effectiveness of government spending on environmental protection. Design/methodology/approach - The paper uses the ecological footprint data and an ARDL model to gauge the income and government spending effects on environmental improvement. This method avoids the problems associated with using the regression including a squared income. Findings - The results find no evidence for a turning point in the income–pollution relationship and no significant impact of government spending on reducing footprint. We conjecture that the structure of the economy and the weak institutional quality may explain the results. Research limitations/implications - This includes limited time series data on institutional quality indices and their small variations over time. Practical implications - Creating an environmental fund using the oil windfall and applying environmental tax/subsidies policies will help address increasing environmental challenges in energy-rich developing countries. Education and public awareness about environmental problems and their impacts on the standard of living are also nonexpensive but effective ways to increase citizen's engagement towards improving environment. Social implications - The EKC may take different forms in various countries depending on their economic structure and institution qualities. Originality/value - The paper uses the ARDL method rather than a commonly used regression with a squared income to estimate the EKC. It also uses ecological footprint as a measure of environmental damage. Exploring government effectiveness in managing public good is also novel in the empirical literature.