Domestic and International Influences on Green Taxation

Abstract

Economists have made a strong case for the relative efficiency of market-based mechanisms for environmental regulation such as cap and trade and “green taxes,” yet the spread of these forms has been limited, and traditional “command and control” regulation still predominates. The authors explain geographical and temporal variation in green tax burdens by considering their domestic and international determinants, modeling international influences using spatial lags. Hypotheses are tested using panel data on Organisation for Economic Co-operation and Development member states from 1995 to 2004. At the domestic level, the authors show that green tax burdens are influenced by the left–right and environmental positions of legislative medians and the power of the energy-producing sector, among other factors. The authors also show that ideas about policy diffuse through international networks generated by trade and environmental intergovernmental organizations, but they do not find compelling evidence for international tax competition.