Green taxes and commercial banks profitability in developing countries. The role of corruption

Abstract

This paper investigates the impact of green taxes on the banks’ profitability, drawing on annual data from 2,348 commercial banks in developing countries between 2004 and 2022. Using OLS, fixed-effects, and 2SLS panel data estimation techniques, along with alternative proxies for green taxes and banks’ profitability, the study finds evidence that green taxes significantly reduce the profitability of commercial banks. Furthermore, the moderation analysis results indicate that low corruption enhances the positive impact of green taxes on commercial banks’ profitability. This effect is particularly pronounced in countries characterized by low greenhouse gas emissions and weak regulatory quality, highlighting the importance of addressing corruption as an integral part of the broader strategy for implementing green taxes. Generally, the study results underscore the critical need for a balanced and holistic approach to environmental policy design that integrates anti-corruption measures with sustainability incentives to promote institutional integrity while safeguarding commercial banks’ profitability in developing countries.