Abstract
This paper provides empirical evidence regarding the effect of energy based taxes on economic growth. The analysis is based on a panel dataset of 31 OECD (Organisation for Economic Co-operation and Development) member countries from 1994 to 2013, using multiple imputation algorithm to address missingness pattern. Employing the instrumental variables with two-stage least squares instrumental variable estimator, we found that energy based taxes have a negative effect on economic growth rate. This effect may rely significantly on the level of the economy’s dependence on polluting energy use as a share of total energy used in the production process. In addition, our study shows that an increase in energy based taxes can enhance significantly the economic growth rate, as the initial level of country’s richness increases.
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Notes
See Ricci (2007) for a comprehensive survey on impacts of environmental policy on growth.
Polluting energy products include coal and coal products, oil products, natural gas and electricity. More details are provided in the Sect. 4.
Our sample includes 31 countries member in the OECD. Chile, Mexico, USA was excluded because they don’t have data for the productive expenditure variable. We explain this in Sect. 4.
Variables used in the Barro-type regression are called the conditioning variables (Kneller et al. 1999).
“General government consists of central government, state government, local government and social security funds” (OECD 2013: 62).
Barro (1990) suggests that the effects of taxes on economic growth depend on whether tax is distortionary or non-distortionary. Distortionary taxes in this context are those which affect the investment decisions of agents and hence distort the steady-state rate of growth. Conversely, non-distortionary taxation does not affect saving/investment decisions and hence has no effect on the rate of growth.
Since energy taxes are expected to affect the production of goods more than services and as we later aim to explore whether growth impacts of energy taxes depend on the level of trade openness of goods and services has been excluded from trade openness index.
Because of completely missingness patterns of data for the productive expenditure variable, Chile, Mexico, USA countries were excluded from our sample.
An econometric analysis of panel data was chosen to study the nature of relation between energy based taxes and growth for two reasons. First, the available data about environmental taxation ranges according to OECD statistics from 1994 to 2013. This series is not long enough for using time-series econometrics. Employing panel data will allow us to cover more observations and thus raise the statistical power and inference of the model. Second, Temple (1999) and Baltagi (2001) argue that panel estimators are the most appropriate choices for growth regression.
OCED statistics provide data of environmental tax revenues for the period 1994–2014. But as the available data on total final consumption of polluting energy products and on capital human are available only until 2013, we decided to restrict our study from 1994 to 2013.
In highly developed countries with a high income, the tertiary sector (services sector) dominates the total output of the economy.
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Hassan, M., Oueslati, W. & Rousselière, D. Exploring the link between energy based taxes and economic growth. Environ Econ Policy Stud 22, 67–87 (2020). https://doi.org/10.1007/s10018-019-00247-5
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DOI: https://doi.org/10.1007/s10018-019-00247-5
Keywords
- Environmental tax
- Economic growth
- Instrumental variables with two-stage least squares IV (2SLS) approach
- Multiple imputation