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

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  • Ramón López
  • Amparo Palacios

Abstract

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. Copyright Springer Science+Business Media Dordrecht 2014

Suggested Citation

  • Ramón López & Amparo Palacios, 2014. "Why has Europe Become Environmentally Cleaner? Decomposing the Roles of Fiscal, Trade and Environmental Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(1), pages 91-108, May.
    • Handle: RePEc:kap:enreec:v:58:y:2014:i:1:p:91-108
    DOI: 10.1007/s10640-013-9692-5
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    6. Galinato, Gregmar I. & Galinato, Suzette P., 2016. "The effects of government spending on deforestation due to agricultural land expansion and CO2 related emissions," Ecological Economics, Elsevier, vol. 122(C), pages 43-53.
    7. Ramón E. López & Vinod Thomas & Pablo Troncoso, 2015. "Climate Change and Natural Disasters," Working Papers wp414, University of Chile, Department of Economics.
    8. Li, Xin & Li, Zheng & Su, Chi-Wei & Umar, Muhammad & Shao, Xuefeng, 2022. "Exploring the asymmetric impact of economic policy uncertainty on China's carbon emissions trading market price: Do different types of uncertainty matter?," Technological Forecasting and Social Change, Elsevier, vol. 178(C).
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    10. Fenfen Shi & Rijia Ding & Heqing Li & Suli Hao, 2022. "Environmental Regulation, Digital Financial Inclusion, and Environmental Pollution: An Empirical Study Based on the Spatial Spillover Effect and Panel Threshold Effect," Sustainability, MDPI, vol. 14(11), pages 1-28, June.
    11. Lu, Hongyou & Xu, Wenli & Xu, Kun, 2016. "How to Make The Fiscal policies Greener in China?——Based on The Perspective of Environmental Macroeconomics," MPRA Paper 70221, University Library of Munich, Germany.
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    14. Koengkan, Matheus & Fuinhas, José Alberto & Kazemzadeh, Emad & Alavijeh, Nooshin Karimi & de Araujo, Saulo Jardim, 2022. "The impact of renewable energy policies on deaths from outdoor and indoor air pollution: Empirical evidence from Latin American and Caribbean countries," Energy, Elsevier, vol. 245(C).
    15. Ionel Bostan & Mihaela Onofrei & Elena-Doina Dascalu & Bogdan Fîrtescu, 2016. "Impact of Sustainable Environmental Expenditures Policy on Air Pollution Reduction, During European Integration Framework," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 18(42), pages 286-286, May.
    16. Yen Nguyen & Son Le & Nam Ngo & Huyen Nguyen, 2023. "Impacts of FDI and Environmental Pollution in ASEAN Countries: The Role of Institutions," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 242-250, September.
    17. Ramon Lopez & Vinod Thomas & Pablo Troncoso, 2016. "Economic growth, natural disasters and climate change: New empirical estimates," Working Papers wp434, University of Chile, Department of Economics.
    18. Halkos, George E. & Paizanos, Epameinondas Α., 2016. "The effects of fiscal policy on CO2 emissions: Evidence from the U.S.A," Energy Policy, Elsevier, vol. 88(C), pages 317-328.
    19. Mustafa Kamal & Muhammad Usman & Atif Jahanger & Daniel Balsalobre-Lorente, 2021. "Revisiting the Role of Fiscal Policy, Financial Development, and Foreign Direct Investment in Reducing Environmental Pollution during Globalization Mode: Evidence from Linear and Nonlinear Panel Data ," Energies, MDPI, vol. 14(21), pages 1-25, October.

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    More about this item

    Keywords

    Government spending; Spending on public goods; Pollution; Taxes; H50; H40; O13; O44; Q53;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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