Governance, green taxes, and air pollution in the European Union

This study examines the dynamic relationship between environmental pollution, governance quality, and environmental taxation in European Union (EU) countries from 1996 to 2022. Three major air pollutants—PM₂.₅, NO₂, and SO₂—are examined as dependent variables to capture environmental outcomes. Governance quality is represented by regulatory quality, government effectiveness, and rule of law, while environmental policy is proxied by three environmentally related tax indicators: environmental tax as a share of total tax revenue, environmentally related tax revenue as a share of GDP, and environmentally related tax revenue per capita. Employing a panel autoregressive distributed lag (ARDL) framework, the study uncovers both short- and long-run dynamics. The findings reveal that governance quality—particularly regulatory quality and rule of law—exerts a significant long-run negative effect on PM₂.₅ and NO₂, while the influence on SO₂ is comparatively weaker. Environmental taxation shows mixed but generally meaningful long-run effects, underscoring the complementary role of fiscal instruments alongside institutional reforms in reducing emissions. Control variables such as per capita GDP, renewable energy use, and working-age population display heterogeneous effects across pollutants, highlighting the complex economic–environmental linkages in the EU. Overall, the results emphasize that strengthening governance structures, tailoring environmental taxation, and promoting the adoption of renewable energy are central to achieving sustainable reductions in air pollution across Europe.