Performance Tools and Their Impact on Pollution Reduction: An Assessment of Environmental Taxation and R&D

Although the theoretical implications of environmental taxation and government's research and development (R&D) investment have been discussed at length, a link between the effects of such tools and improved environmental performance has not been sufficiently supported by empirical evidence. This paper explores the effects of environmental taxation as well as R&D on environmental pollution. We used cross-country panel data from 26 OECD countries with observations ranging from 1995 to 2005. Our findings have led us to the conclusion that taxation has no significant effect on reducing environmental pollution, while governmental R&D expenditure exhibits a significant and positive impact on the reduction of environmental pollution.