**Table 2.**

*Statistical summary of variables.*

*The Environmental Influence of Tax Regimes in Selected European Union Economies DOI: http://dx.doi.org/10.5772/intechopen.94552*

### **4.2 Panel unit root test analysis**

**Table 3** shows that when the Augmented Dickey-Fuller test (ADF) tests; Levin, Lin, and Chu (LLC) and the Im-Pesaran-Shin (IPS) were employed the time series is not affected by the presence of unit roots. As such, through deploying a null hypothesis that a specific time series is non-stationary all the variables demonstrates that they are stationary at the first-order differenced series for all ADF, LLC and IPS tests (at 1% significant level) employing the first-generation panel unit-roots. Although variables such as transport tax, production, and environmental sustainability were not confirmed using the IPS test the other two remaining tests argument in favor of the general findings of the paper.

Using logarithm of greenhouse gas emissions as the dependent variable and total environmental tax as the main independent variable **Table 4** outlines the results of the research about the Pooled Ordinary Least Square (OLS) model, Fixed Effect (FE) and Random Effect (RE) models widely regarded as the static models. The details in **Table 4** demonstrates that Hausman test produces a chi-square value of 270.32 which is also significant at 5% (*p* = 0.000 < 0.05). This shows that we will reject the null hypothesis which illustrates that the RE model is suitable in favor of the alternative hypothesis which explains that the FE model is suitable. The dynamic nature of the FE model is further analysed using the two-step GMM model.


#### **Table 3.**

*Showing the panel unit root test results.*


*Notes: \*\*\*; \*\*; \* mean significant at 1%, 5% and 10% significance level, respectively. Numbers in brackets are* p*-values.*

#### **Table 4.**

*Estimates of static panel data for total environmental tax: Case of Greenhouse Emissions.*

The results found in **Table 4** are also generally congruent with outcomes found in **Table 5**. For example, the Hausman test generates a chi-square estimate of 15.24 which is also significant at 5% (*p* = 0.0330 < 0.05) supports the FE model which permits the study to use the two-step GMM analysis procedure.

The findings generated in **Tables 4** and **5** are also generally confirmed with results in **Table 6** (although in this case energy tax and transport tax are the main independent variables). For instance, the Hausman test shows a chi-square estimate of 195.27 which is also significant at 5% (*p* = 0.000 < 0.05) favoring the FE model. As such, the two-step GMM analytical process will be applied.

In **Table 7**, the Hausman test generates a chi-square estimate of 18.41 which is also significant at 5% (*p* = 0.0184 < 0.05) thereby supporting the FE model.

**Table 8** presents the outcomes acquired by running the two-step GMM analytical method within the short-run context with regards to total environmental tax as the main independent variable. We begin first by evaluating greenhouse gas emissions as the dependent variable. To begin, the lagged factor *Log*GHG*it*<sup>1</sup> of greenhouse gas emissions indicates a positive and significant relationship with greenhouse gas emissions. Hence, a 1% increase in lagged greenhouse gas emissions


*The Environmental Influence of Tax Regimes in Selected European Union Economies DOI: http://dx.doi.org/10.5772/intechopen.94552*

#### **Table 5.**

*Estimates of static panel data for total environmental tax: Case of Environmental Sustainability.*

triggers a 0.218% increase in greenhouse gas emissions. This diagnosis implies that when past greenhouse gas emissions in the EU economies rise then they will also stimulate current emission levels. This is confirmed by continued increase in emissions globally [60, 75] which require to be lowered.

*Notes: \*\*\*; \*\*; \* mean significant at 1%, 5% and 10% significance level, respectively. Numbers in brackets are* p*-values.*

Secondly, the total environmental tax shows a positive and highly significant association with greenhouse gas emissions. In this context, a single rise in total environmental tax leads to a 0.22 increase in greenhouse gas emissions. However, this study finding conflicts with [76] who noticed significantly small and even negative carbon leakage after unilateral environmental tax reforms were integrated in Europe between the studied periods 1995 to 2005. Third, a 1% increase in energy consumption also results in a significant 0.73% rise in emissions thereby agreeing with [77] analysis on 116 countries over the period 1990 to 2014. Fourth, a percentage rise in green research and development in the short-run is also leading to a 0.36% increase in greenhouse gas emissions. However, this finding contradicts Fernández, López and Blanco's [78] survey on 15 European Union countries, the United States and China between 1990 and 2013 and spotlights that green research and development adds positively to a decline in emissions in developed countries.


*Notes: \*\*\*; \*\*; \* mean significant at 1%, 5% and 10% significance level, respectively. Numbers in brackets are* p*-values.*

#### **Table 6.**

*Estimates of static panel data for total energy tax and transport tax: Case of Greenhouse-gas Emissions.*

However, other remaining variables indicates negative and significant links to greenhouse gas emissions. For example, a percentage increase in economic growth leads to a 0.40% significant decrease in emissions. Nonetheless, this study outcomes disagrees with Salahuddin et al. [79] research on Kuwait for the period 1980–2013 by applying the autoregressive distributed lag (ARDL) bounds testing approach and adds that economic growth motivates emissions in both short-run and long-run. In another context, a 1% rise in government expenditure significantly lowers greenhouse gas emissions by 0.815%. However, [80] studied the Venezuelan context over the period from 1971 to 2013 and contributes that government expenditure has a positive effect on environmental degradation-emissions. In addition, the ecoinnovation rating is also responsible for decreasing emissions significantly by 0.0039% in these studied EU countries in the short-run. Using the GMM technique on China's 30 provinces during 2000–2013, [81] also contributes that environmental innovation resources along with green knowledge innovation are essential components for emissions reduction. The results of this study also demonstrates that a


*The Environmental Influence of Tax Regimes in Selected European Union Economies DOI: http://dx.doi.org/10.5772/intechopen.94552*

*Notes: \*\*\*; \*\*; \* mean significant at 1%, 5% and 10% significance level, respectively. Numbers in brackets are* p*-values.*

#### **Table 7.**

*Estimates of static panel data for total energy tax and transport tax: Case of Sustainability.*

1% increase in production will also likely reduce emissions by a significant 0.40%. However, Ganda [82] survey on the BRICS (Brazil, Russia, India, China, and South Africa) using panel data from 1992 to 2014 express that production practice, through industrial initiative adds to emissions.

The second part of this section will examine the short-run results by examining environmental sustainability as the dependent variable. In this case, a 1% rise in past adjusted net savings, excluding particulate emission damage, which is the proxy for environmental sustainability (*Log*ANS*it*<sup>1</sup>) will significantly improve current environmental sustainability levels in the scrutinised EU economies by 0.235%. Secondly, a percentage increase in total environmental tax leads to a 2.88% increase in environmental sustainability. Kosonen [83] suggests that environmental taxes are major instruments that governments can deploy in order to achieve sustainability although their regressive effects require extensive consideration. Thirdly, a 1% increase in energy consumption significantly rises environmental sustainability by 5.56%. This outcome is elaborated by [84] study on OECD


#### **Table 8.**

*Findings of GMM short-run results as the dynamic regression approaches: In case of total environmental tax.*

economies from 1980 to 2011 using the STIRPAT model and highlights that renewable energy consumption promotes sustainability by lowering emissions while non-renewable energy use increase emissions thereby destroying the natural environment.

Fourth, when short-run green research and development increased by 1% then environmental sustainability will significantly decrease by 0.75%. This finding conflicts with [85] study on US electric generators who adds that short-run decisions to integrate green technologies also provide significant emission reduction opportunities even before new technologies have been fully integrated on a broadened scale.

#### *The Environmental Influence of Tax Regimes in Selected European Union Economies DOI: http://dx.doi.org/10.5772/intechopen.94552*

Furthermore, income is also found to be lowering environmental sustainability in the short-run for the studied EU countries. In this context, a percentage increase in economic development significantly decreases sustainability by 1.32%. Nevertheless, Ganda [86] study on OECD economies also highlights that disagrees with these outcomes as income is ascertained to increase environmental sustainability by 17.8% in the short-run. Another variable, government expenditure is also ascertained to significantly lower environmental sustainability by 10.79% when it increases by a single percent. Then, a 1% rise in eco-innovation is also accountable to a significant decrease estimated at 1.54% of environmental sustainability. However, a 1% increase in production will significantly heighten environmental sustainability by 2.91%. As such, Severo, de Guimarães, Dorion and Nodari [87] having explored the Brazilian Metal-Mechanic industry posits that cleaner production positively influences environmental sustainability.

**Table 9** also depicts the results obtained by implementing a two-step GMM analysis process. The presentation disaggregates total environmental tax by identifying energy tax and transport tax as the main independent factors in this analysis. As previously done in the previous section, we commence by initially assessing greenhouse gas emissions as the dependent variable. In this context, it is evident that the lagged variable factor *Log*GHG*it*<sup>1</sup> of greenhouse gas emissions indicates a positive and significant link with greenhouse gas emissions. More precisely, a percentage increase in lagged greenhouse gas emissions stimulates a 0.29% rise in greenhouse gas emissions. These results concur with earlier results determined in this paper when total environmental tax was analysed as an aggregate green tax proxy.

In addition, energy tax demonstrates a positive and significant connection with greenhouse gas emissions. As such, a 1% rise in energy tax is sufficient to increase emissions by 0.10%. However, Solaymani [88] study on Malaysia found out that energy tax can reduce emissions although carbon tax was found to be a more effective tax instrument for emissions reduction programs. Furthermore, the paper outcomes show that transport tax shows a negative and highly significant association with greenhouse gas emissions. In this context, a single rise in transport tax leads to a 0.13% decrease in greenhouse gas emissions. González and Hosoda [89] also conducted a study in Japan between 2004 and 2013 using the Bayesian structural time series model and they highlight that the integration of fuel tax has unequivocally minimised aircraft emissions.

As well, the research illustrates that a 1% increase in energy consumption also results in a significant 0.47% rise in emissions thereby agreeing with findings presented in **Table 8**. Conversely, the results in **Table 9** further indicates that a percentage rise in green research and development generates a 0.15% decrease in greenhouse gas emissions thereby supporting [79] study on 15 European Union countries. Furthermore, economic growth has a negative and significant association with emissions. As such, a 1% increase in income stimulates a 0.28% reduction in emissions. However, Magazzino [90] study on Italy over the period 1970 to 2006 demonstrates a bidirectional causality link between economic growth and emissions.

The other outstanding variables indicate positive and significant links to greenhouse gas emissions. For instance, a percentage increase in government expenditure leads to a 0.176% significant rise in emissions. Contradicting with these findings [91] study on a panelised data of 94 countries between 1970 and 2008 illustrates that government expenditure exercise a significant direct influence in reducing the amount of emissions. As well, the eco-innovation rating is also responsible for rising emissions significantly by 0.11%. However, Costantini et al. [92] exploration of European industries confirm that both indirect and direct impacts of ecoinnovations assist lessening environmental degradation although the strength varied throughout the industry value chain. The outcomes of the research also confirm


#### **Table 9.**

*Findings of GMM short-run results as the dynamic regression approaches: In case of energy tax and transport tax.*

that as production in the short-run increases by 1% emissions also heightens by 0.15%. Likewise, Phalan et al.'s [93] survey on the Brazilian beef industry expresses that production is highly unlikely to help lower emissions, and is possibly likely to exacerbate deforestation.

The remaining segment of this section will evaluate the GMM findings through scrutinising environmental sustainability as the dependent variable. Thus, from **Table 9**, if lagged environmental sustainability (*Log*ANS*it*<sup>1</sup>) increases by 1% then a

#### *The Environmental Influence of Tax Regimes in Selected European Union Economies DOI: http://dx.doi.org/10.5772/intechopen.94552*

0.16% improvement in current environmental sustainability levels in the studied EU countries is apparent thereby supporting outcomes validated in **Table 8**. Secondly, a percentage increase in total energy tax leads to a 4.37% decrease in environmental sustainability. Likewise, Choi et al.'s [94] survey on the United States gas taxes and fuel subsidy policy explains that in situations where part of gasoline tax revenue is prioritised towards subsidising biofuel production then better resource consumption and mitigated emissions will be evidenced. However, this paper outcomes indicate that a 1% rise in transport tax increase environmental sustainability by 5.74%.

The paper results also demonstrate that a 1% increase in energy consumption significantly rises environmental sustainability by 0.54%. Furthermore, it can be ascertained that if green research and development increased by 1% then environmental sustainability will significantly increase by 1.75%. Moreover, a percentage rise in income motivates a 1.30% rise in environmental sustainability. Hatfield-Dodds et al. [95] study on Australia also contributes that it is quite difficult to decouple economic growth and environmental outcomes and mobilisation of technologies and engagement of environmental incentives are essential for advancement towards sustainable prosperity. The research outcomes also show that a 1% increase in government expenditure is also ascertained to significantly lower environmental sustainability by 12.6%. In addition, a 1% rise in eco-innovation is also accountable to a significant increase estimated at 0.34% of environmental sustainability. Nevertheless, a 1% increase in production will significantly lessen environmental sustainability by 5.99%.

**Table 8** which was presented earlier in this section outline the regression findings in the short-run scenario in case where environmental tax was identified as the main independent variable. **Table 10** above extends the discussion by examining the association involving environmental tax as the primary independent factor to both emissions and environmental sustainability but on a long-run setting. In detail, it is evident that environmental tax form a positive relationship with both greenhouse gas emissions and environmental sustainability (although it is significant in this context). Likewise, energy consumption shows a significantly positive link with


#### **Table 10.**

*Findings of GMM long-run results as the dynamic regression approach: in case of total environmental tax.*


#### **Table 11.**

*Findings of GMM long-run results as the dynamic regression approach: In case of energy tax and transport tax.*

both emissions and environmental sustainability. Green research and development produce a positive link with emissions but its connection with environmental sustainability is significantly negative. The results further prove that economic growth, government expenditure, and eco-innovation show significant negative relationships to both emissions and environmental sustainability in the long-term. Lastly, production generates a significantly negative link with emissions but its association with environmental sustainability is significantly positive.

**Table 9** of this part of the study produced short-run associations by disintegrating total environmental tax through isolating energy tax and transport tax as the main independent variables. **Table 11** expand this analysis by identifying the association of these explanatory variables against both emissions and environmental sustainability within a long-run basis. In brief, energy tax, government expenditure and production produces a significantly negative connection with both emissions and environmental sustainability. Other findings confirm that transport tax, green research and development, economic growth and eco-innovation demonstrate negative and positive associations with both emissions and environmental sustainability. The relationship involving energy use to both emissions and environmental sustainability is positive in both cases.

#### **5. Discussion and implications**

This section presents a detailed analysis of the study also highlights the implications of the research.

**Table 12** provide useful insights about the context involving the association between total environmental tax and both greenhouse gas emissions along with environmental sustainability. Total environmental tax appears to be increasing emissions both on the short-and long-run scenario although it is found to be also


*The Environmental Influence of Tax Regimes in Selected European Union Economies DOI: http://dx.doi.org/10.5772/intechopen.94552*

#### **Table 12.**

*Summary of GMM short-and long-run results.*

simultaneously increasing environmental sustainability. This implies that while overall natural environmental effect as a result of imposing environmental tax improves there is also a need for EU economies to introduce specific green taxes which directly focus on particular environmental indicators so that emission reduction is effectually achieved. Moreover, there is a need to transform or remove particular environmental taxes which are not effectively achieving zero-emission targets. As well, taxes can be modified by adding regulatory instruments so that they are aligned with natural environmental objectives and goals. It is also apparent that energy consumption has been increasing the level of emissions and environmental sustainability. In this case, EU economics should continue expanding the integration of renewable energy and oppose further consumption of fossil fuels. There is evidence of renewable energy use in EU economies [13, 60] in pursuit of lower emissions which can possibly explain the improved environmental sustainability context. However, there is also a need to upgrade energy systems of green energy technologies so that they do not add to heightening emissions.

Green research and development is found to be highly effective when environmental taxes are emphasising of particular environmental measures instead of adopting a holistic environmental tax policy. For instance, when environmental tax was disaggregated the tax tools used managed to motivate green research and development to lower emissions and simultaneously raise environmental sustainability. Economic growth is quite effective in lowering the level of greenhouse gases whether environmental tax is aggregated and/or disaggregated. Of note is that economic growth effectively improve environmental sustainability in the short and long-run when EU economies use specific environmental taxes when adopting a comprehensive environmental tax instrument.

On the one hand, government expenditure is very efficient in lowering emissions in the short and long-run but is also not able to promote environmental sustainability during these periods in case where aggregate environmental tax is employed. On the other hand, the situation is also predominantly noticeable when environmental tax has been disaggregated (energy tax and transport tax) except that it increases emissions in the short-run. This indication shows that government expenditure in EU economies needs to focus on an inclusive approach which supports all issues related to sustainability instead of putting much emphasis on

emissions alone. In this case, government expenditure should also include environmental standards and regulations and measures which heighten environmental sustainability.

It is also observable that eco-innovation is capable of lowering emissions whether environmental tax is aggregated or disintegrated. However, in the case where environmental tax is not aggregated, that is, specific eco-innovation improves environmental sustainability but it worsens environmental sustainability in case of total environmental tax. This shows the importance of introducing specific eco-innovation regulatory standards that fits different parts of the production and ultimate distribution of manufactured goods and services.

Although production in EU economies manage to lower emissions in cases where environmental is aggregated and/or not is has not been able to improve environmental sustainability. In this case, while production has managed emissions reduction targets the impacts of this procedure on other natural environmental components require to be upgraded.

Lastly, it is apparent that energy tax has been lessening environmental sustainability but transport tax has been effective in creating required environmental sustainability scenarios. Both these taxes are also effective in the long-run in lowering emissions although energy tax is found to ineffective in lowering emissions in the short-run. It is evident that the transport tax appears to be a more effective instrument to meet environmental goals when compared to energy tax in EU economies. In this case, there is a need to revise energy policy and regulatory instruments that deal with energy in these countries so that such tools are harmonising with sustainability goals and objectives.

### **6. Conclusion**

The first findings presented regression results when the aggregate environmental tax was employed. These outcomes show that total environmental tax, energy consumption, green research and development significantly heightened emissions in the short-run scenario. The results further demonstrate that in the short-term economic growth, government expenditure, eco-innovation rating and production scores significantly lowered emissions. The results also confirm that total environmental tax, energy consumption and production significantly increase environmental sustainability in the short-run. Conversely, green research and development, economic growth, government expenditure, and eco-innovation significantly lower environmental sustainability in the short-run. The long-run results demonstrate that environmental tax and energy consumption develop a positive relationship with both greenhouse gas emissions and environmental sustainability respectively. In addition, green research and development generates a positive connection with emissions although its link with environmental sustainability is significantly negative. Economic growth, government expenditure, and ecoinnovation illustrates a significant negative relationships to both emissions and environmental sustainability in the long-term. In the long-run, production produces a significantly negative association with emissions but a significantly positive relationship with environmental sustainability.

The second part of the results section outlined regression when disaggregated environmental tax (energy tax and transport tax) was deployed. Thus, in the shortterm, energy tax, energy consumption, government expenditure, eco-innovation rating, and production scores spur a significant rise in emissions. However, transport tax, green research and development, and income influence lessens emissions in the short-run. Furthermore, energy tax and production significantly reduce

#### *The Environmental Influence of Tax Regimes in Selected European Union Economies DOI: http://dx.doi.org/10.5772/intechopen.94552*

environmental sustainability in the short-term. Nonetheless, transport tax, energy consumption, green research and development, income and eco-innovation significantly increase environmental sustainability in the short-run. The long-run findings proves that energy tax, government expenditure and production produces a significantly negative relationship with both emissions and environmental sustainability. As well, transport tax, green research and development, economic growth along with eco-innovation produce negative and positive associations with both emissions and environmental sustainability. Lastly, energy use shows a significantly positive link to both emissions and environmental sustainability.
