Short and long run environmental tax buoyancy in EU-28: a panel study

Abstract

Since the beginning of the global 2020 economic crisis, the need to turn to sustainable economies has been arising in order to cope with the risks that derive from climate change which might undermine global financial stability. Therefore, there is a renewed interest in analysing the relation between the growth cycle and green taxes. This article attempts to evaluate the responsiveness of the European environmental taxation system to the economic cycle. Using yearly data collected in 28 European countries from 2000 to 2018, we run the dynamic common correlated effects estimator to compute the short- and long-run environmental tax buoyancy. Findings provide evidence of short-run rigidity for the energy tax revenues, whilst being buoyant in the long run for the total tax revenues, drawn mainly by taxation on transport. This suggests that the environmental tax system works as a good stabiliser for the economy.