The role of environmental taxes on technological innovation.

Several studies have investigated the effect of environmental taxes on economic growth and carbon emissions. However, limited studies have quantitatively identified the connection between environmental taxes and technological innovations. The main focus of this study is to investigate the causal relations between environmental taxes and environment-related technological innovation with a holistic, robust model with significant statistical power. This model consists of panel cointegration analysis considering the cross-sectional dependence, applied to quantify the effects of environmental taxes on environment-related technological innovation in high and middle-income 42 countries from 1995 to 2018. The long-run results suggest that environmental taxes stimulate technological innovation; for example, a 1% increase in environmental taxes was found to increase environment-related technological innovation by 0.57 and 0.78% on average for high and middle-income countries using the CCEMG and AMG techniques, respectively. The policy implications of this study suggest that imposing environmental taxes can accelerate the advancement of environmental-related technologies for reducing carbon emission and sustainable development in high and middle-income nations, with possible applications in a broad range of nations, particularly as an evidence base for developing nations to shorten energy transition timelines. [Display omitted] • Econometric methods were applied to clarify the relationship between environmental taxes and technological innovation. • Builds on prior studies, employing a robust, statistically powerful approach. • Results identify that environmental taxes stimulate technological innovation in high and middle-income nations. • The proposed policy can be applied for developing nations to shorten their energy transition timelines. [ABSTRACT FROM AUTHOR]