The role of macroeconomic factors in the relationship between environmental taxes and environmental pollution: The case of OECD countries

Environmental taxes are among the most common financial instruments used in environmental regulation. They not only mitigate environmental damage by influencing the polluting behaviors of consumers and producers, but also encourage activities aimed at environmental protection. However, particularly in developing countries, environmental taxes are implemented primarily for revenue generation, and it has been observed that the collected revenue is not allocated for environmental purposes. In this context, it is expected that for environmental taxes to effectively reduce pollution, countries need to reach a certain level of development and exhibit specific macroeconomic indicators. In the study, these indicators—derived from the literature—are identified as per capita income, the level of financial development, energy intensity, and environmental R&D expenditures, with the assumption that a reasonable level of these factors would enhance the effectiveness of environmental taxes. In this study, based on OECD countries and covering the period from 1995 to 2021, the relationship between environmental taxes and environmental pollution was examined using a Generalized Smooth Transition Panel Regression analysis. The analysis incorporated per capita GDP, the financial development index, energy intensity, and the percentage of environmental technologies, and threshold levels were determined for each variable. The findings indicate that environmental taxes reduce environmental pollution when per capita GDP exceeds $26,265.2, the financial development index is above 0.35, the percentage of environmental technologies is higher than 9.16%, and energy intensity is lower than 1.67%. Based on the findings obtained, providing various policy recommendations to policymakers and market actors with the aim of ensuring environmental sustainability and enhancing economic efficiency is considered a significant outcome of this study. Key Words: Environmental Taxes, Environmental Pollution, Per Capita GDP, Financial Development, Energy Intensity, Generalized Smooth Transition Panel