Environmental Tax – Economic Growth Nexus in ASEAN-4 Countries

¹ Faculty of Business and Management, Universiti Teknologi MARA (UiTM), Selangor, Malaysia
² Faculty of Management Studies Sabaragamuwa University of Sri Lanka, Belihuloya, Sri Lanka
³ School of Business and Economics (SPE), Universiti Putra Malaysia (UPM), Serdang, Malaysia

^* Corresponding author: shidaothman@uitm.edu.my

Abstract

In the modern world, energy consumption, carbon emissions, and economic growth are concerns for all nations that want to continue expanding by striking a balance between energy and carbon emissions. One reason for this is that these fuels will cause global warming due to climate change. Environmental taxes are increasingly seen as a crucial component of economic policy, where a well-constructed tax can encourage innovation and economic incentives. The nexus of the economic growth and environment is now becoming one of the essential relations for policymakers. Nevertheless, most of the previous studies are limited to European countries. Thus, this research investigates the cointegration of Environmental Tax (ET) towards Economic Growth (EG) with Interest Rate (IR) as a control variable for the case of selected ASEAN countries, namely Malaysia, Philippines, Thailand, and Vietnam. The yearly data set covering the period from 2014 to 2021 was utilized as the sample period for the panel autoregressive distributed lag model (ARDL) approaches. Results revealed that both the Environmental Tax and Interest Rate have a long-run negative effect on Economic growth but have a positive influence in the short run. From this finding, the implication of environmental tax toward economic growth also may depend on the economic conditions of an economy.