Digitalization and Carbon Emission Efficiency Nexus: The Moderating Role of Environmental Taxes

ABSTRACT This study scrutinizes the time‐varying impact of digitalization on carbon emission efficiency, considering the moderating role of environmental taxes in highly digitalized economies such as the United States, the Netherlands, Singapore, Denmark, and Switzerland. We used quarterly data spanning from 1998 to 2021 by employing the bootstrap subsample rolling‐window (BRW) approach. The findings, based on the parameter stability test, confirm the instability of parameters, implying that conclusions drawn from full‐sample causality are inconsistent. The results derived from the BRW approach affirm that digitalization positively and significantly enhances carbon emission efficiency in the United States, the Netherlands, Singapore, Denmark, and Switzerland. Furthermore, the moderating effect of environmental taxes significantly amplifies the impact of digitalization on carbon emission efficiency across all sample economies. The robustness of the findings has been validated through quantile‐on‐quantile regression (QQR), which also yields results consistent with the BRW approach. Policymakers can leverage the insights from our findings to promote carbon emission efficiency through the strategic integration of digitalization and environmental tax measures, providing a reference for similar economies aiming for sustainable solutions.