Environmental Taxes and Economic Growth: Evidence from Panel Causality Tests

The aim of this study is to determine the causal relationship between environmental taxes and economic growth, using different measures of environmental taxes with GDP as well as adjusted net savings. A panel of European countries and a separate panel of OECD countries are used from 1995 to 2006 and the standard Granger noncausality approach is applied, using panel cointegration and a dynamic panel technique to estimate the error correction models. The results suggest some evidence of long-run causality running from economic growth to increased revenue from the environmental taxes, with also some evidence of short-run causality in the reverse direction. However overall there is little evidence to support the double dividend theory.