ÇEVRE VERGİLERİ VE EKONOMİK BÜYÜME: PANEL VAR ANALİZİ

ENVIRONMENTAL TAX AND ECONOMIC GROWTH: A PANEL VAR ANALYSIS Gökhan DÖKMEN ABSTRACT In recent years there has been tremendous debate among academics and policy makers about the interactions between economic growth and environmental taxation. In this study, the relationship between environmental taxes and economic growth is analyzed using 29 European countries' yearly data for the period 1996 to 2010. The main objectives of this study are to determine the reaction of economic growth in the face of a shock in different kinds of environmental taxes and to examine whether environmental taxation has a positive or negative effect on national economies. Using Panel Vector Autoregressive models, we find positive and statistically significant responses to an environmental tax shock. Keywords: Environmental Taxation, Economic Growth, Panel Vector Autoregressive Models. ÇEVRE VERGİLERİ VE EKONOMİK BÜYÜME: PANEL VAR ANALİZİ ÖZ Son yıllarda çevre vergileri ile ekonomik büyüme arasındaki etkileşim, hem politikacılar hem de akademisyenler arasında yoğun bir biçimde tartışılmaktadır. Bu çalışmada, çevre vergileri ile ekonomik büyüme arasındaki ilişki, 29 Avrupa ülkesinin 1996-2010 yılları arasındaki verileri temel alınarak analiz edilmiştir. Çalışmanın temel amacı, farklı çevre vergilerindeki bir şok karşısında ekonomik büyümenin verdiği tepkiyi belirlemek ve çevre vergilerinin ulusal ekonomi üzerindeki etkisinin negatif olup olmadığını incelemektedir. Panel Vektör Otoregresif model kullanılarak yapılan çalışmada, çevre vergilerindeki bir şok karşısında istatistiksel olarak anlamlı ve pozitif tepkilere ulaşılmıştır. Anahtar Kavramlar: Çevre Vergileri, Ekonomik Büyüme, Panel Vektör Otoregresif Modeller.  Yrd. Doç. Dr. Bülent Ecevit Üniversitesi, İİBF, Maliye Bölümü. Makalenin kabul tarihi: Ocak 2013. 44 Erciyes Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, Sayı: 40, Haziran-Aralık 2012 ss. 43-65 INTRODUCTION The effects of environmental taxation on economic growth are a controversial issue. This topic is discussed from different aspects. According to economists, environmental taxes have a negative effect on economic performance (Roegen, 1971; Meadows et al., 1972; Daly, 1991). This perspective emphasizes that environmental taxes reduces the amount of fossil fuel use and decrease the volume of industrial production. On the other hand, environmentalists do not take the economic performance as a numerical value and focus on the nature of economic growth. This point of view takes environmental taxes not only to protect the environment but also as an important tool to improve sustainable development. The situation is explained by the double dividend hypothesis. According to the hypothesis, increased taxes on polluting activities can provide two kinds of benefits. The first is an improvement in the environment, and the second is an improvement in economic efficiency from the use of environmental tax revenues to reduce other taxes such as income taxes that distort labor supply and saving decisions. In this case, it would be expected a positive rather than a negative impact of environmental taxes on economic performance (Fullerton, Metcalf, 1997:1). This paper investigates the long-run impact of an environmental taxation on economic growth and examines whether such taxation can influence economic growth negatively or positively. The empirical literature on this subject has mainly focused on the use of simulation models. However in this study, econometric methods are used to analyze the relationship between environmental taxation and economic growth due to availability of the environmental tax data (energy and transport) published by Statistical Office of the European Union. The paper is organized as follows. In Section 2, we briefly review the related theoretical literature that indicates how environmental taxation should affect economic growth. Section 3 summarizes the data and presents the empirical findings. Conclusions are in section 4. I. THEORETICAL BACKGROUND Over the last four decades, numerous arguments have been raised about the relationship between economy and environment. In the early phases of the debate, the prevailing view was that economic growth was a threat to the environment. The world will not be able to sustain economic growth indefinitely without running into resource constraints or despoiling the environment beyond repair. This was primarily the view of a number of scientists such as Roegen (1971), Meadows et al., (1972), Daly (1991). These scientists noted that higher  http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/. Environmental Tax and Economic Growth: A Panel Var Analysis 45 levels of economic activity (production and consumption) require larger inputs of energy and materials and generate larger quantities of waste byproducts. Increased extraction of natural resources, accumulation of waste, concentration of pollutants would exceed the carrying capacity of the biosphere and result in the degradation of environmental quality and decline in human welfare despite rising incomes (Galeotti, 2007:428-429). Furthermore, it is argued that degradation of the resource base will eventually put economic activity itself at risk. To save the environment and even economic activity from itself, economic growth must cease and the world must make a transition to a steady-state economy (Panayotou, 2003:1). At the opposite extreme the ecologists’ pessimistic view was counteracted by a systematic relationship between income changes and environmental quality. Initial papers by Shafik and Bandyopadhyay (1992), Grossman and Krueger (1993) and Selden and Song (1994) presented evidence that economic growth may reduce environmental problems. This phenomenon has been referred to as the Environmental Kuznets Curve (EKC), named after Simon Kuznets who proposed a similar relationship for income inequality and per capita income (Kuznets, 1955:1-28). According to EKC, during the early stages of economic growth, degradation and pollution increase, but beyond some level of income per capita (which will vary for different indicators) the trend reverses, so that at high income levels economic growth leads to environmental improvement. This implies that the environmental impact indicator is an inverted U-shaped function of income per capita (Stern, 2004:518). Environmental policy becomes quite controversial, especially when the relationship between economic growth and environment is taken into account. This is especially true when it comes to environmental taxation aimed at preventing pollution. The economic rationale for environmental taxation was developed by English economist Arthur Pigou during the first half of the 20th century. The basic rationale for the use of taxes in environmental policy is provided by the existence of environmental externalities: impacts on the environment, which are side-effects of processes of production and consumption and w (...truncated)