Environmental taxes, environmental policy stringency and policy complementarity: A comprehensive analysis of EU economic and environmental goals

Abstract

Triple dividend is an important concept which connects socio-economic targets, such as economic growth and employment, with ambitious environmental targets for achieving sustainable development. In this framework, this paper investigates the efficiency of using monetary and fiscal tools for supporting economic growth and reducing unemployment and greenhouse gas (GHG) in the European Union based on 1995–2022 data. The results of the Method of Moment Quantile Regression (MMQR) analysis show that financial development, trade openness and environmental policy stringency reduce unemployment, promote economic growth, and protect environmental goals. In comparison, inflation is not efficient for fighting against unemployment increases and is not significant for achieving a robust economic growth rate. Total environmental, energy and transport taxes are efficient only for reducing unemployment and increasing gross domestic product (GDP) growth. However, at a high level of environmental taxation, GDP decreases. Total environmental taxes are not efficient for reducing GHGs on a solid basis. The results suggest that neither fiscal instruments, such as environmental taxation, nor monetary policy tools, such as interest rate adjustments, are independently sufficient to achieve the environmental, economic, and employment objectives outlined in the triple dividend theory, highlighting the need for a more integrated and comprehensive policy approach. In contrast, strict environmental regulations, along with well-developed financial systems and robust international trade performance have proven more effective. Therefore, policymakers should prioritize these three areas to promote long-term sustainable development within the EU region.