Exploring the mediating role of digital economy in the relationship between fiscal decentralization and the SDGs dimensions in the EU

Abstract

The motivation of this research is the surge in the integration of the digital economy (DE) and fiscal decentralization (FD) as crucial issues for countries. To maintain sustainable growth, it is important for EU to adopt sustainable development goal (SDGs) practices. However, the connection between DE, FD, and SDG practices has not been thoroughly examined in existing literature. Therefore, the objective of this study was to examine the mediating role of DE between FD and SDGs in EU. We employed a panel dataset between 2016 and 2022 from Eurostat, the Organization for Economic Cooperation and Development, and Government Finance Statistics, using a quantitative research design, and applied the structural equation model (PLS-SEM) analysis to test the hypotheses. The results indicate that FD has a significant negative effect on economic sustainability but a significant positive effect on environmental and social SDGs. In addition, FD has a significant positive effect on DE. We also found that DE has a significant positive relationship with economic and social SDGs. However, DE has a negative but significant influence on environmental sustainability. This study also proved that DE plays a mediating role between FD and Sustainability. This study contributes to theories of fiscal federalism and resource dependency. These original findings have several practical implications for policymakers and contribute to the current debate on the role of FD in SDGs through DE. hence, we recommend that policymakers prioritize the development of broadband Internet access, e-governance resources, and invest in digital skill training programs.