Why has Europe Become Environmentally Cleaner? Decomposing the Roles of Fiscal, Trade and Environmental Policies

This paper examines the role of fiscal policy, trade and energy taxes on environmental quality in Europe using disaggregated data at the monitoring station level for the 12 richest European countries spanning the period from 1995 to 2008. Our estimations show that fiscal policies and energy taxes ar...

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Bibliographic Details
Published in:Environmental & resource economics 2014-05, Vol.58 (1), p.91-108
Main Authors: López, Ramón, Palacios, Amparo
Format: Article
Language:English
Subjects:
Bias
Carbon emissions
Consumption
Econometrics
Economic Policy
Economics
Economics and Finance
Energy
Energy taxes
Environmental Economics
Environmental Law/Policy/Ecojustice
Environmental Management
Environmental policy
Environmental quality
Environmental regulations
Environmental tax
Europe
Expenditures
Fiscal policy
GDP
Government spending
Gross Domestic Product
Income distribution
International trade
Nitrogen dioxide
Ozone
Pollutants
Pollution
Public expenditure
Studies
Sulfur
Taxes
Taxonomy
Time series
Variables
VOCs
Volatile organic compounds
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Summary:This paper examines the role of fiscal policy, trade and energy taxes on environmental quality in Europe using disaggregated data at the monitoring station level for the 12 richest European countries spanning the period from 1995 to 2008. Our estimations show that fiscal policies and energy taxes are important determinants of pollution through various mechanisms. We find that increasing the share of fiscal spending in GDP and shifting the emphasis towards spending in public goods and against non-social subsidies significantly lower the concentrations of sulfur dioxide and ozone but not nitrogen dioxide. At the same time, energy taxes reduce nitrogen dioxide concentrations but have no effect on ozone and sulfur dioxide. Finally trade openness has a direct effect on sulfur dioxide but no effect on nitrogen dioxide or ozone. Our estimates account for time-varying unobserved heterogeneity.
ISSN:0924-6460
1573-1502
DOI:10.1007/s10640-013-9692-5