Revisiting the Economic Growth Effects of Environmental Taxes: Empirical Evidence from Global Level

Abstract

The aim of this study is to investigate the impact of environmental taxes on both global and continental economic growth. Utilizing a panel data analysis of 92 countries, the study offers empirical evidence within a global framework and conducts a sub-analysis at the continental level using the innovative method of moments quantile regression. The findings indicate that, on a global scale, environmental taxes have a significantly positive effect on economic growth, suggesting that they are progressive fiscal policy tools for fostering global economic growth. The global results also reveal intriguing tail dynamics: at lower levels of economic growth, the effects of environmental taxation are negligible, whereas at higher levels, they become significant. The study highlights that the influence of environmental taxes on economic growth is both heterogeneous and asymmetric, reflecting the varied economic landscapes across different continents. In Asia and Europe, the highest polluting continents, the effect of environmental taxes on economic growth is largely positive, in contrast to Africa and America, where the effect is significantly negative and insignificant, respectively. These results emphasize the importance of international collaboration in promoting environmental taxes while continuing efforts to support global economic growth. It is essential for governments and policymakers to seamlessly integrate these environmental tax measures into their Nationally Determined Contributions (NDCs), aligning with the objectives of COP29, thereby accelerating progress towards achieving the Sustainable Development Goals (SDGs). This study contributes to the environmental tax literature by offering a clear understanding of how environmental taxes drive economic growth globally and consistently.