Environmentally related taxes and their influence on decarbonization of the economy

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Environmental taxes ensure sustainable development, but their fiscal and environmental effectiveness differs for countries with different socio-economic characteristics. This study aims to compare the impact of environmental tax revenues on economy’s decarbonization (measured through carbon productivity – the ratio of GDP to carbon dioxide emissions) in different countries, considering their green technologies development and carbon emissions. The paper analyzed OECD and World Bank statistical data for 38 OECD countries for 2002–2021 using linear panel regression models with fixed and random effects (using Hausman test and STATA 18). To identify explicit and latent patterns of this influence, which are common to certain countries, this analysis did not consider each country separately but targeted clusters, distinguished by Ward and Sturges methods based on the effective tax rate on carbon emissions, total environmental tax revenues, total carbon emissions, and carbon productivity. The positive influence of environmental tax revenues on the economy’s decarbonization level has been confirmed for 29 countries (four from six clusters). The effect is the largest for the USA (an increase in tax revenues by 1% leads to an increase in carbon productivity by 0.9% on average) and the smallest – for the cluster including Austria, Belgium, Canada, Costa Rica, Czechia, Estonia, France, Germany, Hungary, Iceland, Korea, Lithuania, New Zealand, Poland, Portugal, Slovakia, Spain, and the Great Britain (increase – 0.1%). The negative impact was confirmed for nine countries (two from six clusters): Denmark, Finland, Israel, Latvia, and Sweden (decrease – 0.3%) and Greece, Italy, the Netherlands, and Slovenia (decrease – 0.21%).

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    • Figure 1. Comparative analysis of ECR in OECD member countries in 2021
    • Figure 2. Rating of OECD member countries according to Carbon Productivity in 2021
    • Figure 3. Dendrogram for Ward link cluster analysis
    • Figure 4. Descriptive characteristics of cluster analysis
    • Figure 5. Results of Hausman test to determine the specification of linear regression model for countries panel of the first cluster
    • Table 1. Normalized input data
    • Table 2. The country’s distribution in the formed clusters
    • Table 3. Generalized results of country clustering
    • Table 4. Linear regression model with fixed effects for countries panel of cluster 1
    • Table 5. Linear regression model with random effects for countries panel of cluster 1
    • Table 6. The generalized results of the regression analysis to confirm the impact of environmentally related taxes (Environmentally Related Tax Revenue) on the decarbonization of the economy (Carbon Productivity)
    • Conceptualization
      Olena Dobrovolska, Swen Günther, Olga Chernetska, Natalia Dubrova, Svitlana Kachula
    • Data curation
      Olena Dobrovolska, Olga Chernetska
    • Formal Analysis
      Olena Dobrovolska, Swen Günther
    • Funding acquisition
      Olena Dobrovolska, Natalia Dubrova, Svitlana Kachula
    • Investigation
      Olena Dobrovolska, Olga Chernetska
    • Methodology
      Olena Dobrovolska, Swen Günther, Svitlana Kachula
    • Project administration
      Olena Dobrovolska, Swen Günther, Svitlana Kachula
    • Resources
      Olena Dobrovolska, Olga Chernetska, Natalia Dubrova
    • Software
      Olena Dobrovolska, Natalia Dubrova
    • Supervision
      Olena Dobrovolska, Swen Günther, Svitlana Kachula
    • Validation
      Olena Dobrovolska, Olga Chernetska
    • Visualization
      Olena Dobrovolska, Swen Günther, Natalia Dubrova, Svitlana Kachula
    • Writing – original draft
      Olena Dobrovolska, Swen Günther, Olga Chernetska, Natalia Dubrova, Svitlana Kachula
    • Writing – review & editing
      Olena Dobrovolska, Swen Günther, Olga Chernetska, Natalia Dubrova, Svitlana Kachula