Abstract
As climate change has gained more attention in the last decade, effects of environmental regulation on productivity are important to design green tax reforms. This study examines the impacts of environmental taxes and spillovers on technical efficiency, using data on Central European manufacturing firms, from 2009 to 2017. The results highlight strong effects of environmental taxation on productivity. Besides, downstream energy taxation does not affect productivity, while upstream taxes decrease technical efficiency. Downstream pollution taxation decreases productivity, whereas upstream taxation spurs technical efficiency. This study contributes to the literature by investigating heterogeneous tax effects across industries, involving tax spillovers and considering endogeneity issues.
Highlights
The choice of environmental policy instruments has been extensively debated since the seminal contribution of Pigou (1920) on using taxes and subsidies to internalize welfare losses caused by externalities
Economic theory preferred MBIs because of their cost effectiveness, command and control’ (CAC) has been the major instrument for a long time
Concerning energy tax rates, my results are in line with Fujii et al (2016) who conclude that energy conservation laws raised productivity in the metals and machinery sectors
Summary
The choice of environmental policy instruments has been extensively debated since the seminal contribution of Pigou (1920) on using taxes and subsidies to internalize welfare losses caused by externalities. To provide empirical evidence on these conflicting hypothesis, I examine the impacts of environmental taxes on company performance and behaviour employing micro-data on Central European manufacturing firms from 2009 to 2017. Yang et al (2021) find significantly negative effects of tightening S O2 removal rates on Chinese firm- and industry-level productivity. Commins et al (2011) find positive effects of energy taxes on productivity and returns on capital, negative impacts on employment, and mixed effects on investment of European firms. Supporting the Porter hypothesis, Lanoie et al (2008) find negative short-run and positive long-run impacts of environmental policy stringency on technical efficiency of Quebec’s manufacturing firms. Lundgren et al (2015) estimate the efficiency impacts of CO2 taxes on Swedish pulp and paper manufacturers, partially observing significantly positive effects.
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