Relationship between GDP and Government Expenditure on Environmental Protection and Environmental Tax Revenues

Abstract

One of the main aims set by the European Union (EU) is to protect the environment and improve its quality, which affects many industry sectors (such as mining, energy, transport and many others). But at the same time, it aims to achieve economic growth. The paper links these two ambitions of the EU. The paper aims to examine the relationship between the GDP and two environmental indicators, namely the government expenditure on environmental protection and the environmental tax revenues in the EU countries. The research uses freely available Eurostat database data and relativizes them by per capita conversion for comparability. Descriptive statistics and fixed effect panel regression models are used in the evaluation. All data for all EU countries from 2014 onwards are evaluated. The results showed that the level of GDP per capita in the European Union countries could be affected by government expenditure on environmental protection per capita (positive relationship validated) and environmental tax revenues per capita (positive relationship validated). The paper presents political implications in two dimensions. The one follows from the double positive effect of government expenditure on environmental protection – contribution to environmental sustainability and economic growth. The second one calls for caution in decision-making by the public authorities based on the interpretation of the positive relationship of environmental tax revenues since their growth may be accompanied by an increase in undesirable activities associated with threats to environmental sustainability.