Abstract
The COVID-19 pandemic has taken its toll on the economies of the EU member states. While policymakers have been faced with rising government spending in an effort to combat the health crisis, this has led to unprecedented levels of government debt and budget deficits. Debt sustainability has been severely affected by decreasing fiscal space, and there are significant concerns that a debt crisis is looming on the horizon for the EU. The current study aims to analyze environmental taxes as a potential solution for rebuilding fiscal space and thus improving debt sustainability in the EU. The research method used to study the impact that the four types of environmental taxes may have on fiscal space is the dynamic panel regression model, estimated using the Generalized Method of Moments (GMM). The conclusions show that all four categories of environmental taxes can help the EU member states regain fiscal space and improve their debt sustainability. The research results show that the strongest positive impact on fiscal space will be achieved by energy taxes and transport taxes.
Highlights
Environmental taxes are defined, according to Regulation (EU) N◦ 691/2011, as taxes whose tax base is a physical unit of an item that has a proven and specific negative impact on the environment
The current study aims to help fill this current gap in the literature by analyzing environmental taxes as a potential solution to improving fiscal space for EU member states
The research results presented in the previous section show that the EU member states can use environmental taxes, especially energy taxes and transport taxes, to rebuild fiscal space, which was lost as a result of increasing levels of government indebtedness due to efforts to combat the COVID-19 pandemic
Summary
Environmental taxes are defined, according to Regulation (EU) N◦ 691/2011, as taxes whose tax base is a physical unit of an item that has a proven and specific negative impact on the environment. Eurostat provides data on environmental taxes in the EU and further clarifications on exactly what can be included in the category of environmental taxes. According to Eurostat’s 2013 ‘Environmental taxes—a statistical guide’ there are four main types of environmental taxes: energy taxes, pollution taxes, resource taxes and transport taxes. Energy taxes include taxes on the production of energy as well as energy products (petrol, diesel, natural gas, coal, and electricity). This category includes carbon dioxide (CO2 ) taxes; if a country uses these, they need to be reported separately. Taxes on greenhouse gases are included under energy taxes, not under pollution taxes. Revenue generated from the selling of emissions permits are included in this category
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