The impact of taxation, technological innovation and trade openness on renewable energy investment: Evidence from the top renewable energy producing countries

Abstract

In the context of contemporary global warming, transitioning from traditional fossil energy to renewable energy sources emerges as a crucial strategy to reduce carbon emissions and achieve the 7th sustainable development goal (SDG). Tax policy significantly shapes the investment landscape, influencing all factors concerning the transition to renewable energy, such as technological innovation and trade openness. However, no empirical studies have examined the direct and moderating role of taxation on renewable energy investment, mainly due to the scarcity of tax data. Therefore, this paper utilizes the recently released Government Revenue Dataset (2023) to explore the complex link between taxation, technological innovation, trade openness, and renewable energy investment for a sample of the top 37 renewable energy-producing countries during the period (1996–2021). The results of the cross-section ARDL (CS-ARDL) and the pooled mean group ARDL (PMG-ARDL) models indicate that taxation has a negative and significant influence on renewable energy investment across all model specifications, both in the short and long run. Conversely, innovation and trade openness exhibit a positive and significant influence on clean energy investment. Regarding the moderating influence of taxation, the results revealed that tax revenues depress the positive impact exerted by technological innovation and international trade. Furthermore, the fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) models affirm the robustness of the long-run results obtained from CS-ARDL and PMG-ARDL models. The study's findings offer significant insights into how countries engaged in renewable energy production can enhance their taxation framework to leverage trade and innovation to promote renewable energy investment.