The effect of environmental taxes on ecological footprint: The case of OECD countries

The environment acts as a pool for pollution resulting from economic activities. While the natural resources offered by the environment are the basic inputs for production, the environment is polluted as a result of economic activities. In this context, the relationship between economy and environment has become controversial. As a matter of fact, despite the view that economic growth is an important cause of environmental pollution, there is also another approach that argues that economic growth is essential for reducing environmental pollution. The Environmental Kuznets Curve argues that environmental pollution will decrease after a certain income level. This approach represents the positive view based on developments such as technological developments, environmental awareness and increase in monetary opportunities in growing economies. On the other hand, there are also approaches claiming that the pollution resulting from the use of natural resources for economic activities deteriorates the environmental quality. Increasing interest in environmental problems has led to the emergence of some economic instruments to reduce environmental pollution. Environmental taxes, which stand out among these instruments are an important source of income for governments as well as preventing pollution. That is while environmental taxes provide environmental improvement they also provide some economic benefits. This is known as the Double Dividend Hypothesis. This feature of environmental taxes encourages the countries to impose such taxes. Environmental pollution, which has become a serious problem with the increase of urbanization has generally been considered within the framework of harmful gas contaminations in the air or solid wastes included in the environment. However, Recently the concept of ecological footprint has been introduced in the literature as a more comprehensive indicator of environmental pollution. Ecological footprint is an indicator of the destruction caused by humanity as a result of production and consumption activities. It has been discussed in the study with the idea that the ecological footprint is a comprehensive indicator in terms of reflecting the pressure on the environment. The aim of this study is to examine the relationship between environmental taxes and ecological footprint through data covering the 1994-2017 period of 32 OECD countries. Since data for Iceland, Costa Rica, New Zealand, Chile, Luxembourg and Switzerland were not available, these countries were excluded from the contend. Dynamic Panel Threshold Analysis was used for the analysis under the assumption that the relationship between environmental taxes and ecological footprint has a non-linear process. According to the results of the analysis, while energy taxes and transportation taxes were statistically non-significant below the threshold value, they were statistically significantly negative above the threshold value. Moreover, total environmental taxes were statistically significantly negative above the threshold value, while they were statistically significantly positive below the threshold value. A positive relationship was found between the ecological footprint and the per capita income and energy density. The relationship direction of the lagged value of ecological footprint, renewable energy, urbanization rate and energy prices was found to be negative and statistically significant. The results of the analyses suggest that the tax rate below the threshold value is ineffective or affects the environment negatively. In this context, efficiency can be achieved by applying environmental taxes above the threshold value. In this direction, efficiency can be achieved by applying environmental taxes above the threshold value. However, environmental taxes alone may not be enough to reduce the pressure on the environment. In addition, pollution can be prevented by applying policies such as the incentive mechanism which is among other environmental protection tools. The destruction of economic growth on the environment can also be reduced by the use of eco-friendly technologies. Moreover, in the context of economic growth, the use of renewable energy sources instead of the use of fossil fuels that emit polluting gas into the air will prevent pollution and reduce the pressure on the environment. Furthermore, the urbanization area and its structure are also closely related to the environment. By promoting the urbanization on relatively less fertile areas instead of fertile agricultural areas and forestlands, it can be ensured that the environment is less exposed to pollution. Keywords: Environmental Pollution, Ecological Footprint, Environmental Taxes, Panel Threshold Regression Analysis