Resource Taxes as an Instrument to Foster Circularity? Analysis of the Effects of Resource Taxation on Circular Economy Progress in Europe

Abstract The concept of Circular Economy (CE) keeps gaining momentum in political and societal debates as it is considered to contribute to a more sustainable use of natural resources. Policymakers seeking to foster CE progress require adequate regulatory instruments. One instrument often recommended is a tax on the use of natural resources. The present paper analyzes the effects of resource taxation on different CE indicators, especially resource productivity, based on panel data for 30 European countries from 1995 to 2021. The Augmented Mean Group (AMG) estimator is applied, and the results are checked for robustness using the Pooled Mean Group (PMG) estimator. Despite current low levels of resource taxation, the results indicate that resource taxation positively affects resource productivity at least in the short run. The effect differs substantially in different countries. Hence, resource taxation seems to foster circularity, but the results indicate that other factors are of influence and should be considered when designing policies.