The Green Fiscal State and Environmental Performance: Institutions and Public Finance Within the SDG Wedding Cake Framework

This study examines the impacts of public expenditure, public debt, and institutions on the biosphere layer proposed by the SDG wedding cake hierarchy within a multidimensional theoretical framework, using the Environmental Performance Index (EPI). Through this process, it utilizes the understanding of fiscal sociology as a main foundation and demonstrates how New Institutional Economics, Green Keynesianism, public goods composition, and selective borrowing policies are implemented as budget‐oriented policy design using the tools of Coase, Becker, Pigou, and Weitzman. Using data from 31 advanced economies over the period 1995–2022, the analysis is conducted through the Method of Moments Quantile Regression (MMQR) approach. The findings indicate that public expenditure has a positive impact on environmental performance, and this effect becomes more pronounced at higher quantiles. Furthermore, the findings indicate that while public debt offers a modest but steady contribution, institutional quality stands out as the most influential and linearly acting determinant of environmental outcomes. Moreover, the results demonstrate that, within the set of control variables, energy consumption undermines environmental quality, whereas trade openness and economic growth enhance it. The empirical findings suggest that environmental outcomes are shaped by budget design from a fiscal sociology perspective. Fiscal policies and institutional frameworks are important policy tools in shaping the biosphere layer of the Sustainable Development Goals' wedding cake. In this context, it is recommended that policymakers channel public spending and public debt toward environmentally friendly projects such as recycling and green technologies like renewable energy, while simultaneously strengthening institutional capacity to achieve environmental objectives.