In this paper we investigate what effect political and economic freedom has on emissions of CO2. The estimated models predict that CO2 is always increasing in GDP even at high level of GDP, which confirms the results of earlier studies.
Moreover, we find that political freedom decreases CO2 emissions. This positive relation between democracy and environmental quality has been found for several other pollutants, and we confirm the results for CO2 emissions. Increased economic freedom, in terms of lower government size, decreases CO2 emissions when the size of the government is small but increases emissions when the size is large. An increased use of market or increased freedom to trade decreases CO2 emissions. Increased price stability and legal structure has no effect on emissions. The results hold for both linear and log-linear specifications, except for the freedom of trade variable that is in significant in the linear case. The result is also robust to the sample. Hence, the direct effects of economic freedom on CO2 emissions are mainly decreasing except for the government size effect, which increases emissions at high levels of freedom.
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