Is There Any Evidence on the Existence of an Environmental Taxation Kuznets Curve? The Case of European Countries under Their Rule of Law Enforcement

The paper gives new insights into the environmental taxation policy,demonstrating the existence of an inverse U-shaped relationship between environmentaltaxation and income in European countries. Our findings reveal this relationship to beinfluenced by enforcement of the rule of law, which contributes to shifting the turning pointon the curve to lower income levels. We show that former transition economies have notreached the turning point due to weak institutions. To achieve the goal of sustainabledevelopment, the European Environment Agency’s Environmental Taxation Reform,proposing to shift taxation from “goods” to “bads”, should be accompanied by effectiveenforcement or the rule of law. The heterogeneity found between market-based and formertransition European countries demonstrates the existence of problems at the EU-level in thecoordination of environmental policies and enforcing the rule of law. In addition, the analysisof the determinants of environmental taxation points to the importance of factors related toconsumption and production, governance, environmental quality, oil price shocks and the shiftof environmental policy in European countries.