Is There Any Evidence on the Existence of an Environmental Taxation Kuznets Curve? The Case of European Countries under Their Rule of Law Enforcement

Abstract

Abstract:The paper gives new insights into the environmental taxation policy, demonstrating the existence of an inverse U-shaped relationship between environmental taxation and income in European countries. Our findings reveal this relationship to be influenced by enforcement of the rule of law, which contributes to shifting the turning point on the curve to lower income levels. We show that former transition economies have not reached the turning point due to weak institutions. To achieve the goal of sustainable development, the European Environment Agency's Environmental Taxation Reform, proposing to shift taxation from "goods" to "bads", should be accompanied by effective enforcement or the rule of law. The heterogeneity found between market-based and former transition European countries demonstrates the existence of problems at the EU-level in the coordination of environmental policies and enforcing the rule of law. In addition, the analysis of the determinants of environmental taxation points to the importance of factors related to consumption and production, governance, environmental quality, oil price shocks and the shift of environmental policy in European countries.

The Links between Environmental Innovation and Environmental Performance: Evidence for High- and Middle-Income Countries

“…Therefore, the indirect effect of patent through economic growth on environmental pollution emissions can be considered. Castiglione, Infante, and Smirnova [36] conducted an analysis on both the direct effect and indirect effect of the independent variable on the dependent variable. They analyzed the indirect effect of the rule of law through increasing economic growth on the environmental tax.…”

Non-trivial Factors as Determinants of the Environmental Taxation Revenues in 27 EU Countries

“…A few studies make an effort to analyse the ET policy instruments and identify factors crucial for its efficacy (Anger et al 2006;Bovenberg and de Mooij 1997;Castiglione et al 2014;Ekins and Barker 2001;Muller and Sterner 2006;Ward and Cao 2012). In the light of these studies, the most explored determinants of ET can be identified.…”

“…Obviously, the quality of governance is closely related to its enforcement. Institutions such as property rights, legal origins, and democracy have been shown to have an important impact on environmental quality and policy (Cole 2007;Damania et al 2003;Pellegrini and Gerlagh 2006) and, consequently, on ET (Castiglione et al 2014). From the environmental perspective, the institution of the rule of law is of major importance since it reflects the supremacy of law and the quality of the institutional context itself.…”

Environmental Tax Policy in Romania in the Context of the EU: Double Dividend Theory

“…Most policies regarding the environmental protection were introduced in Europe at the end of 1998-1999. Where the rule of law was strong and policies were properly set, the volume of environmental taxation first increased and then decreased as a consequence of the effectiveness of environmental policies [1].…”

“…Former transition countries have not yet reached the turning point of the U-curve, and this probably reflects less stringent institutional context [16] for a full implementation of the environmental policies. In the European countries where environmental taxation has started to decrease, this is mainly due to institutional reforms [1].…”