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The Fiscal Implications of Carbon Taxation: Empirical Evidence from Selected Mediterranean Economies |
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PP: 11-27 |
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Author(s) |
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Yasmine Ahmed Mostafa Sakr,
Safaa Abd elbasset Abd elaziz Mahmoud,
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Abstract |
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| This study examines the impact of carbon taxation on fiscal sustainability in selected Mediterranean countries—France, Slovenia, and Spain—over the period 2008–2023. Mediterranean countries are undergoing a structural transition toward economic systems that rely more on clean energy and place environmental sustainability at the center of development strategies. In this context, taxation plays a central role in shaping incentives and generating public revenues needed to finance the transition, while fiscal sustainability has become increasingly important due to rising public expenditures and potential revenue instability associated with climate change.
The analysis employs a panel data framework in which fiscal sustainability is measured using the public debt-to-GDP ratio. Carbon taxation represents the main explanatory variable, alongside employment, inflation, and CO₂ emissions as control variables, with country and year effects explicitly modeled. The study evaluates whether carbon taxation can contribute to both environmental objectives and long-term fiscal capacity.
The empirical results indicate a positive and statistically significant association between carbon taxation and the debt-to-GDP ratio across model specifications. This relationship reflects the broader macro-fiscal context in which carbon pricing policies are implemented, particularly during periods of economic stress, rising expenditures, and policy interventions such as energy subsidies and compensation measures. Carbon taxation contributes to revenue generation and supports fiscal balances, although overall debt dynamics remain influenced by structural pressures and external shocks.
The findings also highlight that the fiscal role of carbon taxation is transitional. While it generates meaningful revenues in the short to medium term, its tax base may decline as emissions are reduced. Overall, carbon taxation can support fiscal sustainability when integrated into policy frameworks that balance environmental effectiveness, revenue generation, and social considerations. |
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