Exploring the Role of Fiscal Policies in Advancing Low-Carbon Frontiers: An Empirical Analysis

Abstract

This study investigates whether green taxation can effectively drive countries toward carbon efficiency frontiers, emphasizing its role in mitigating carbon emissions while fostering sustainable development. Using a balanced panel dataset covering 11 countries over 25 years, the research applies advanced econometric techniques to explore the relationship between green tax revenue, CO₂ emissions per capita, renewable energy consumption, and trade openness. The empirical findings reveal that higher green tax revenues significantly contribute to reductions in CO₂ emissions, confirming the environmental effectiveness of fiscal instruments designed to internalize external costs. Moreover, renewable energy adoption and openness to international trade are found to strengthen the environmental benefits of green taxation, creating synergistic effects that accelerate the transition toward carbon efficiency. The study’s outcomes support the principles of Pigovian taxation and the double dividend hypothesis, suggesting that environmental taxes not only curb pollution but also enhance economic performance through innovation and cleaner energy use. By integrating fiscal policy with energy and trade dynamics, the research provides valuable policy insights for governments aiming to balance economic growth with environmental stewardship and achieve long-term sustainability goals within the global climate agenda.