Asymmetric effect of environmental tax on CO2 emissions embodied in domestic final demand in developing economies: A panel NARDL approach

This paper employs the panel nonlinear autoregressive distributed lag model to investigate the asymmetric effects of environmental taxes on CO2 emissions embodied in domestic final demand (CDFD) in 23 developing economies. The results indicate that a reduction in environmental tax has a more adverse effect on CDFD than an increase in tax, implying that environmental taxes alone may not be sufficient to reduce CO2 emissions, especially in the context of rapid economic growth. Additionally, the study finds that fluctuations in GDP and population growth are associated with changes in CDFD. The findings further reveal that environmental tax has a positive association with CDFD, which suggests that to achieve emission reduction targets, policymakers need to consider other measures such as incentives for clean technology and regulations on high-emission industries. Furthermore, the robustness test results suggest that technological innovation is significantly linked to a decrease in CO2 emissions embodied in domestic final demand and greenhouse gas (GHG) emissions, while trade openness is positively associated with CDFD but negatively correlated with GHG emissions. This research provides crucial implications for policymakers on the effectiveness of environmental taxes and the need for supplementary measures to decrease CO2 emissions in developing economies.