Author: Dr. Gariba and colleagues.
The growing integration of the digital economy (DE) and fiscal decentralization (FD) has become a central issue for many countries seeking sustainable economic growth. Within the European Union (EU), aligning these efforts with Sustainable Development Goals (SDGs) has become increasingly vital. Despite rising interest in both fiscal and digital reforms, the connection between DE, FD, and SDG practices remains underexplored. This study seeks to address this gap by analyzing the mediating role of the digital economy in the relationship between fiscal decentralization and the attainment of SDGs across EU member states.
To achieve this objective, the research utilizes a panel dataset covering the years 2016–2022, sourced from Eurostat, the Organization for Economic Cooperation and Development (OECD), and Government Finance Statistics (GFS). A quantitative research design was adopted, and the hypotheses were tested using Partial Least Squares Structural Equation Modeling (PLS-SEM). This analytical approach allows for a comprehensive assessment of both direct and indirect relationships between fiscal decentralization, digitalization, and the three dimensions of sustainability, economic, social, and environmental.
The empirical findings reveal several important patterns. Fiscal decentralization shows a significant negative impact on economic sustainability but a positive and significant effect on environmental and social dimensions of the SDGs. This suggests that while greater fiscal autonomy may pose challenges to short-term economic stability, it enhances local environmental initiatives and social well-being by empowering regional governments to tailor policies to local needs. Furthermore, fiscal decentralization positively influences the development of the digital economy, demonstrating that local fiscal capacity supports investments in digital infrastructure and technology adoption.
In turn, the digital economy exhibits a significant positive effect on both economic and social sustainability but a negative, albeit significant, impact on environmental sustainability. These results indicate that digital growth drives innovation, productivity, and social inclusion, yet may contribute to environmental pressures such as increased energy consumption and electronic waste. The mediating analysis further confirms that the digital economy acts as a bridge linking fiscal decentralization and sustainability outcomes, enhancing understanding of how digital transformation can translate fiscal autonomy into measurable progress toward the SDGs.
This study contributes to the broader theoretical discourse on fiscal federalism and resource dependency by providing empirical evidence from the EU context. It highlights the critical role of digital infrastructure and innovation ecosystems in translating fiscal decentralization into sustainable outcomes. The findings underscore the necessity of a balanced policy approach that maximizes digital benefits while mitigating environmental trade-offs.
From a policy standpoint, the study recommends that EU governments and regional authorities prioritize the expansion of broadband internet, the development of e-governance platforms, and investment in digital skill-building programs. Strengthening digital capacity at both national and local levels can foster inclusive growth and enhance progress toward the SDGs. Overall, this research provides a timely and practical roadmap for policymakers aiming to harness the synergy between fiscal decentralization and the digital economy to achieve long-term sustainability.
Read the full article here to explore the detailed findings and their implications for both policymakers and practitioners.