Investigating the effects of environmental taxes on economic growth: Evidence from empirical analysis in European countries

  • Received January 8, 2021;
    Accepted May 10, 2022;
    Published June 3, 2022
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  • Article Info
    Volume 13 2022, Issue #1, pp. 1-15
  • Cited by
    10 articles

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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.

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.

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    • 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
    • Conceptualization
      Jules-Eric Tchapchet-Tchouto
    • Data curation
      Jules-Eric Tchapchet-Tchouto
    • Formal Analysis
      Jules-Eric Tchapchet-Tchouto, Noukignon Koné, Loudi Njoya
    • Investigation
      Jules-Eric Tchapchet-Tchouto
    • Methodology
      Jules-Eric Tchapchet-Tchouto, Loudi Njoya
    • Project administration
      Jules-Eric Tchapchet-Tchouto
    • Resources
      Jules-Eric Tchapchet-Tchouto, Noukignon Koné, Loudi Njoya
    • Software
      Jules-Eric Tchapchet-Tchouto, Noukignon Koné, Loudi Njoya
    • Supervision
      Jules-Eric Tchapchet-Tchouto
    • Validation
      Jules-Eric Tchapchet-Tchouto, Noukignon Koné, Loudi Njoya
    • Visualization
      Jules-Eric Tchapchet-Tchouto
    • Writing – original draft
      Jules-Eric Tchapchet-Tchouto, Noukignon Koné, Loudi Njoya
    • Writing – review & editing
      Jules-Eric Tchapchet-Tchouto, Noukignon Koné, Loudi Njoya