The Impact of Environmental Taxes on Competitive Performance of Pollution-Intensive Industries Among Transition Economies: Evidence from Panel Analysis

The persistent differences in environment-related taxes across countries may be considered as a source of competitive (dis)advantage depending on countries’ commitments to sustainable development and environmental protection. In this study, an attempt is made to overcome at least two deficiencies associated with previous literature concerning the influence of environmental stringency on trade flows among transition economies, the measurement of environmental stringency that rarely accounts for the direct impact of taxing pollutant emissions, and the common use of cross-section analysis encompassing transition economies. Although, economists and policy makers generally agree that prices should incorporate the full costs of environmental degradation and that market-based instruments present an effective environmental policy measures, the introduction and the use of these measures has remained limited. Previous literature has not studied the impact of environment-related taxes on relative export performance of transition economies’ heavy pollutant industries in a dynamic and an integrated framework that allows for more validated assessment of costs/benefits of environmental regulation. This research attempts to fill-in this gap in the literature. The results of panel analysis in this chapter seem to render support to the hypothesis of the least regulated transition economies, i.e., CEE EU member states tend to specialize in pollution-intensive industries and tend to benefit from differences in compliance with environmental regulation among EU countries.