DO GREEN TAXES DELIVER ENVIRONMENTAL DIVIDENDS? PANEL EVIDENCE ON CARBON EFFICIENCY AND SUSTAINABILITY

Abstract

This study examines whether green taxation can effectively move countries toward carbon efficiency frontiers by reducing emissions while supporting sustainable development objectives. Relying on a balanced panel dataset comprising 11 countries observed over a 25-year period, the research employs advanced econometric techniques to analyze, the relationship among green tax revenue, carbon dioxide emissions per capita, renewable energy consumption, and trade openness. The objective is to assess whether fiscal instruments designed to price environmental externalities contribute meaningfully to improved environmental performance. The empirical results indicate that higher levels of green tax revenue are significantly associated with reductions in carbon dioxide emissions per capita, thereby confirming the environmental effectiveness of taxation policies aimed at internalizing environmental costs. In addition, renewable energy consumption and trade openness are found to reinforce the impact of green taxation. Specifically, greater adoption of renewable energy sources enhances the emission-reducing effects of environmental taxes, while openness to international trade appears to facilitate technological diffusion and cleaner production practices, generating complementary benefits that support movement toward carbon efficiency frontiers. These findings are consistent with the theoretical foundations of Pigovian taxation and the double dividend hypothesis. Environmental taxes not only discourage pollution by increasing the cost of carbon-intensive activities but may also contribute to broader economic gains through innovation incentives, improved resource allocation, and expansion of cleaner energy sectors. By integrating fiscal policy with energy transition dynamics and international trade linkages, the study offers comprehensive policy insights for governments seeking to reconcile economic growth objectives with environmental sustainability. The results underscore the importance of coordinated policy design in achieving long-term climate goals within the global environmental governance framework.