The role of taxation in environmental sustainability in G-20 economies: A double dividend theoretical assessment

This study analyses the influence of environmental taxes, renewable energy, economic growth, green innovation and financial development on environmental sustainability in G-20 countries from 1990 to 2022. To this end, the Method of Moments Quantile Regression (MMQR) was applied to obtain the reference results, complemented with Fully Modified Ordinary Least Square (FMOLS) and Driscoll-Kraay techniques to perform a comparative analysis. Our results confirm a negative relationship between environmental taxes and sustainability in all quantiles, although this relationship is only significant in the middle and upper quantiles. Furthermore, it is evident that economic growth significantly improves environmental sustainability, supporting the “double dividend” hypothesis, which argues that revenues generated by environmental taxes can be used to finance tax reductions in other areas while contributing to the regulation of environmental degradation. Our findings also show that renewable energy and green innovations play a key role in improving environmental sustainability, underlining the relevance of such variables as fundamental pillars for the fulfilment of the Sustainable Development Goals (SDGs), in particular SDG-7. On the other hand, a positive relationship between financial development and environmental sustainability is identified in the lower quantiles. In contrast, in the upper quantiles, this relationship becomes negative, although not significant. These findings are consistent with the robustness tests performed, which incorporate the use of FMOLS and Driscoll-Kraay standard error estimators.