Investigating the effects of environmental taxes on economic growth: Evidence from empirical analysis in European countries
-
DOIhttp://dx.doi.org/10.21511/ee.13(1).2022.01
-
Article InfoVolume 13 2022, Issue #1, pp. 1-15
- Cited by
- 840 Views
-
232 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This paper empirically analyze the effects of environmental taxes on economic growth using data spanning the period 2009–2019 across 31 European countries (28 from the European Union, including the UK before Brexit, Iceland and Norway, which are candidates to join the EU, and Switzerland). The selected countries are also members of the European Environmental Agency countries (EEA-32). Baseline scenario with Pooled Ordinary Least Squares leads to the evidence that an increase of the environmental taxes in case of any tax policy reform will exacerbate economic growth. Robustness checks by introducing more control variables in response to omitted variables bias, coupling with GMM estimations that control for endogeneity concerns, consistently confirm the results. Deeping more with quantile analysis regression, a negative effect is confirmed in each quantile, and the results are significant at 1%. Nevertheless, there is a discrepancy between each quantile that allows highlighting evidence of countries’ threshold effects. In fact, low-income countries are more negatively affected than upper and medium-income countries. As the official communication of the EU Commission is always in demand of empirical research concerning the economic impacts of environmental policy instruments, the paper sheds light on the possibility of discussing and adapting the EU strategy based on a harmonization system. This evidence of differentiated effects among countries’ thresholds in the absence of any compensation may raise equity considerations within heterogeneous countries. Therefore, this paper fulfills the gaps in the inconclusive results in the existing literature.
Acknowledgments
Authors would like to sincerely thank Ange Jusse Tchouto, Isaac Ketu, Arsene Mouongue Kelly for their invaluable support in this work, their helpful comments and suggestions on the previous draft of this paper. The usual disclaimer apply and views are the sole responsibility of the authors.
- Keywords
-
JEL Classification (Paper profile tab)C23, C51, H23, Q52
-
References64
-
Tables8
-
Figures4
-
- Figure 1. Relationship between environmental taxes and GDP
- Figure A1. Correlation between GDP and international environmental expenditures
- Figure A2. GDP by quantile
- Figure A3. Coefficient of intercept and environmental taxes by quantile
-
- Table 1. Descriptive statistics
- Table 2. Environmental tax and GDP
- Table 3. Robustness check with GMM and adding controls variables
- Table 4. Quantile regression – economic growth and environmental taxes
- Table A1. Testing the unit root of all the variables
- Table A2. Hausman test results
- Table A3. Pairwise correlations matrix
- Table A4. List of countries of European Countries part of European Environmental Agency member countries
-
- Abdullah, S., & Morley, B. (2014). Environmental taxes and economic growth: Evidence from panel causality tests. Energy Economics, 42, 27-33.
- Ambec, S., & Lanoie, P. (2007). When and why does it pay to be green? (Working Paper GAEL No. 2007-05). INRA.
- Andersen, S. M., Speck, S., Barker, T., Junankar, S., Pollitt, H., Gerald, F. J., Jilkova, J., Salmons, R., Ekins, P., Christie, E., & Landesmann, M. (2007). Competitiveness effects of environmental tax reforms (COMETR) (Final report to the European Commission, DG Research and DG Taxation and Customs Union).
- Anger, N., Bohringer, C., & Loschel, A. (2010). Paying the piper to call the tune? A meta-regression analysis of the double-dividend hypothesis. Ecological Economics, 69(7), 1495-1502.
- Bakker, A. (2009). Tax and environment: a world of possibilities. Amsterdam: IBFD.
- Baudu, A. (2012). La fiscalité environnementale française: une fiscalité de rendement ou d’incitation? Revue Française D’administration Publique, 144, 981-993. (In French).
- Baumol, W. J., & Oates, W. E. (1988). The Theory of Environmental Policy (2nd ed.). Cambridge University Press.
- Beaumais, O., & Chiroleu-Assouline, M. (2002). Economie de l’environnement [Environmental Economics]. Paris: Editeur Bréal. (In French).
- Beaumais, O., & Schubert, K. (1999). La modélisation en équilibre général calculable: Un regard sur les interactions économie/environnement [The Computable General Equilibrium Modelling: A look into the economy/environment interactions]. Economie Rurale, 251(1), 25-32. (In French).
- Böhringer, C., Garcia-Muros, X., & Gonzalez-Eguino, M. (2019). Greener and Fairer: A Progressive Environmental Tax Reform for Spain. Economics of Energy and Environmental Policy, 8(2).
- Bosquet, B. (2000). Environmental tax reform: Does it work? A survey of the empirical evidence. Ecological Economics, 34(1), 19-32.
- Bovenberg, A. L., & Goulder, L. (2002). Environmental taxation and regulation, Handbook of Public Economics. In A. J. Auerbach, & M. Feldstein (Eds.), Handbook of Public Economics, 3(1) (pp. 1471-1545). Elsevier.
- Bovenberg, A. L., & Mooij, R. A. (1997). Environmental tax reform and endogenous growth. Journal of Public Economics, 63(2), 207-237.
- Bovenberg, A. L., & Smulders, S. (1995). Environmental Quality and Pollution-Augmenting Technological Change in a Two-Sector Endogenous Growth Model. Journal of Public Economics, 57, 369-391.
- Chancel, L., & Ilse, S. (2014). Environmental taxes and equity concerns: A European perspective. Spring Alliance Conference “Go green, be social”.
- Cuervo, J., & Gandhi, V. P. (1998). Carbon Taxes: Their Macroeconomic Effects and Prospects for Global Adoption – A Survey of the Literature (IMF Working Paper No. WP/98/73).
- Dasgupta, S., Laplante, B., Wang, H., & Wheeler, D. (2002). Confronting the environmental Kuznets curve. Journal of Economic Perspectives, 16(1), 147-168.
- Dokmen, G. (2012). Environmental Tax and Economic Growth: A Panel VAR Analysis.
- Ecotec. (2001). Study on the Economic and Environmental Implications of the use of Environmental Taxes and Charges in the European Union and its Member States (Final Report). Göteborg.
- Ekins, P. (1999). European Environmental Taxes and Charges: Recent Experience, Issues and Trends. Ecological Economics, 31(1), 39-62.
- European Environment Agency. (2022). The role of (environmental) taxation in supporting sustainability transitions.
- Eurostat. (2009). Taxation trends in the European Union. EU27 Tax Ratio at 39.8% of GDP in 2007.
- Eurostat. (2020). Eurostat 2020 Indicators overview.
- Fullerton, D., & Metcalf, G. E. (1997). Environmental Taxes and double dividend hypothesis: Did you Really Expect Something for Nothing? (NBER Working Paper No. 6199).
- Goulder, L. (1994). Environmental Taxation and the ‘Double Dividend’: A Reader’s Guide (Working Paper No. 4896). National Bureau of Economic Research.
- Goulder, L., & Parry, I. (2008). Instrument Choice in Environmental Policy. Review of Environmental Economics and Policy, 2(2), 152-174.
- Gradus, R., & Smulders, S. (1993). The Trade-Off Between Environmental Care and Long-Term Growth-Pollution in Three Prototype Growth Models. Journal of Economics, 58(1), 25-51.
- Grossman, G. M., & Krueger, A. B. (1991). Environmental Impacts of a North American Free Trade Agreement (NBER Working Papers No. 3914).
- Grossman, G. M., & Krueger, A. B. (1995). Economic growth and the environment. The Quarterly Journal of Economics, 110(2), 353-377.
- Hassan, M., Oueslati, W., & Rousselière, D. (2020). Environmental taxes, reforms and economic growth: an empirical analysis of panel data. Economic Systems, 44(3), 100806.
- Im, K. S., Pesaran, M., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74.
- Itaya, J. (2008). Can Environmental Taxation Stimulate Growth? The Role of Indeterminacy in Endogenous Growth Models with Environmental Externalities. Journal of Economic Dynamics and Control, 32(4), 1156-1180.
- Kumbaroglu, G. (2003). Environmental taxation and economic effects: a computable general equilibrium analysis for Turkey. Journal of Policy Modeling, 25(8), 795-810.
- Kuznets, S. (1955). Economic Growth and Income Equality. American Economic Review, 45(1), 1-28.
- Labandeira, X., Labeaga, J., & Rodriguez, M. (2004). Green Tax Reforms in Spain. European Environment, 14(5), 290-299.
- Levin, A., Lin, C-F., & Chu, C-S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24.
- Ligthart, J. (1998). The Macroeconomic effects of Environmental Taxes: A closer look at the feasibility of Win-Win Outcomes (IMF Working Paper No. WP/98/75).
- OECD. (2006). The Political Economy of Environmentally Related Taxes. Paris.
- OECD. (2010). Taxation, Innovation and the Environment. Paris.
- OECD. (2015). Towards Green Growth? Tracking Progress. Paris.
- Ono, T. (2003a). Environmental Tax Policy and Long-Run Economic Growth. The Japanese Economic Review, 54(2), 203-217.
- Ono, T. (2003b). Environmental Tax Policy in a Model of Growth Cycles. Economy theory, 22(1), 141-168.
- Oueslati, W. (2014). Environmental tax reform: Short-term versus long-term macroeconomic effects. Journal of Macroeconomics, 40, 190-201.
- Oueslati, W. (2015). Growth and welfare effects of environmental tax reform and public spending policy. Economic Modelling, 45, 1-13.
- Panayotou, T. (1997). Demystifying the environmental Kuznets curve: turning a black box into a policy tool. Environment and Development Economics, 2(4), 465-485.
- Patuelli, R., Njikamp, P., & Pels, E. (2005). Environmental Tax Reform and the Double Dividend: A Meta-Analytical Performance Assessment. Ecological Economy, 55(4), 564-583.
- Pearce, D. (1991). The Role of Carbon Taxes in Adjusting to Global Warming. The Economic Journal, 101(407), 938-948.
- Piggot, J., & Whalley, J. (1992). Economic impacts of carbon reduction schemes: Some general equilibrium estimates from a simple global model (CES Working Paper No. 17).
- Pigou, A. C. (1924). The Economics of Welfare. Macmilan.
- Ricci, F. (2007). Channels of Transmission of Environmental Policy to Economic Growth: A Survey of the Theory. Ecological Economics, 60(4), 688-699.
- Sachs, J., Panayotou, T., & Peterson, A. (1999). Developing Countries and the Control of Climate Change: A Theoretical Perspective and Policy Implications (CAER II Discussion Paper No. 44).
- Schöb, R. (2003). The Double Dividend Hypothesis of Environmental Taxes: A Survey (CESifo Working Paper No. 946).
- Schubert, K., & Letournel, P.-Y. (1991). Un modèle d’équilibre général appliqué à l’étude de la fiscalité française. Economie et Prévision, 98(2), 83-99. (In French).
- Selden, T. M., & Song, D. S. (1994). Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions? Journal of Environmental Economics and Management, 27, 147-162.
- Siriwardana, M., Meng, S., & Mcneill, J. (2011). The Impact of a Carbon Tax on the Australian Economy: Results from a CGE Model (Business, Economics and Public Policy Working Papers).
- Stern, D. I. (1998). Progress on the environmental Kuznets curve? Environment and Development Economics, 3(2), 173-196.
- Sterner, T., & Khölin, G. (2006). Environmental Taxes in Europe. In Environmental Taxation in Practice. Routledge.
- Tchapchet-Tchouto, J-E., Duthil, G., Savard, L., & Ngo Ngueda, R. D. (2022). Pollution Abatement Strategy and the Dichotomy of “Green” versus “Non-green” Products: A New Analytical Insight. Journal of The Knowledge Economy.
- UNEP. (2010). Green Economy: Developing Countries Success Stories. United Nations Environment Programme.
- Van der Ploeg, F., & Ligthart, J. E. (1994). Sustainable Growth and Renewable Resources in the Global Economy. In C. Carraro (Ed.), Trade, Innovation, Environment (pp. 229-240). Netherlands: Kluwer Academic.
- Williams III, R. C. (2016). Environmental taxation (NBER Working Paper No. 22303).
- Wooldridge, J. M. (2010). Correlated random effects models with unbalanced panels (MSU Working Paper).
- Xepapadeas, A. (2005). Chapter 23 Economic growth and the environment. In Handbook of Environmental Economics, 3 (pp. 1219-1271). Elsevier.
- Xie, J., & Saltzman, S. (2000). Environmental policy analysis: An environmental computable general equilibrium approach for developing countries. Journal of Policy Modelling, 22(4), 453-489.