Are Environmental Taxes Effective in Curbing Air Pollution? Evidence from the United Kingdom

Abstract

There is mounting evidence that emissions of greenhouse gases trigger harmful environmental changes which, in turn, exert immense pressure on governments to reduce environmental damage, without impeding the rate of economic growth. Consequently, governments have been employing a variety of instruments, including taxes, at their disposal. In this context, the study examines the empirical relationship between environmental taxes and air pollution for the UK over the period 1997–2017, by employing the Vector Autoregression method and Granger causality tests. The econometric findings indicate that only energy taxes have been successful in curbing air pollution, whereas other environmental taxes, such as transport, pollution and resource taxes, have failed to exert any significant impact on air quality. We argue that factors such as ineffectiveness of the landfill tax, lack of efficient waste management practices and shortcomings in the motor vehicle tax system are offsetting the impacts of pollution and transport taxes.