Empirical evidence on the effectiveness of environmental taxes

Abstract

The aim of this study is to determine whether environmental taxes affect levels of pollution and energy consumption. Using a panel of European Union (EU) members and Norway, there is a significant negative relationship between environmental taxes and pollution, but no relationship between environmental taxes and energy consumption.

Keywords:

• environmental tax
• pollution
• dynamic panel
• energy

JEL Classification:

• Q28
• Q53
• H20

Notes

¹ In a micro-based approach, Brannlund et al. (2007) assessed the use of energy-based taxes on energy consumption.

² The EU data are used due to the recent availability of its environmental tax data and the extensive literature on the implementation of environmental tax policy in the EU. In addition, the definitions of both tax revenue and the pollution index are roughly common across the EU countries in the sample, ensuring the data share the same features across the variables in the panel. However, the data only starts in 1995 for many of the countries in the sample, limiting the data set to just 300 observations. The data were taken from the Economic and Social Data Services (ESDS) website, which contains the Eurostat database.