Comparative benefits of environmental protection expenditures and environmental taxes in driving environmental quality of the European countries

Abstract

Environmental protection and tax policies are part of the crucial pillars and the evolving aspects of environmental sustainability drive. These policies are increasingly employed to counter the 21st century's global climate problem alongside providing economic relief for the implementing economies. Being on the frontier (i.e., the European Union [EU]) of these policies, the current study examines and compares the impacts of environmental protection expenditures and environmental tax on energy consumption on the ploy to mitigate greenhouse gas (GHG) emissions in the panel of EU member countries. With the use of system generalized method of moments and panel causality analyses, the study established the effectiveness of both environmental protection expenditure and environmental tax at improving environmental quality by respectively mitigating GHG emissions by elasticities of ~2.08 and ~0.18. Importantly, environmental protection expenditure is found to be about two times more effective at mitigating GHG emissions than environmental tax policy, thus providing a novel perspective in the literature. Moreover, energy intensity and Gross Domestic Product help to improve environmental quality by mitigating GHG emissions while population causes more pollutant effects. Additionally, the investigation reveals evidence of Granger causality from environmental protection expenditure to GHG emissions in seven of the EU countries and Granger causality from environmental tax to GHG emissions in 10 European countries. Notably, measurable dimensions of policy guidelines that are relevant for globally and/or nationally defined sustainable development goals are induced from the result of this investigation.