The path to sustainable environment: Do environmental taxes and governance matter?

Abstract

AbstractA poor environment, in turn, hurts the growth and well‐being of the economy. This is because it reduces the quantity and quality of available resources or compromises health. Undoubtedly, economic growth and environmental degradation are closely linked. Hence, environmental taxes are introduced by countries to decrease environmental degradation caused by economic progress. This study checks the impact of environmental tax, governance, and energy prices on environmental quality in the context of organization for economic co‐operation and development countries using data from 1996 to 2019. By utilizing a host of second‐generation econometric methods, the study has empirically analyzed the impact of environmental tax and governance on environmental quality while considering the possible income and energy prices effect to avoid omitted variable bias. The long‐run results indicate that environmental tax and governance increase environmental quality. The empirical results of this study are also used to suggest policy implications for these countries.