Carbon Tax, Innovation, and Economic Growth : A Global Panel Data Analysis

Carbon taxes are increasingly used as policy tools to reduce greenhouse gas emissions. While previous research confirms their effectiveness in lowering emissions, their impact on economic growth remains contested. Theoretical models suggest that this impact may depend on a country’s ability to translate environmental incentives into technological progress. This study examines whether the effect of carbon taxes on GDP growth varies according to national levels of research and development (R&D). Using panel data for 118 countries from 1990 to 2018, several fixed effects regressions are estimated, focusing on both the presence and intensity of carbon taxes. Countries are grouped into high and low R&D categories to explore heterogeneous effects. The findings indicate that carbon taxes are positively associated with growth in high-R&D countries, but show negative or insignificant effects in low-R&D contexts. This suggests that the growth impact of carbon taxes depends on a country’s technological and institutional capacity for green transition to fully stimulate growth.