Can energy transition strengthen tax revenue mobilization in developing countries? Empirical evidence and policy implications

This paper examines whether the energy transition supports tax revenue mobilization in developing countries. Using a newly constructed Multidimensional Energy Development Index and a panel of 52 developing economies over the period 2000–2019, we analyze the relationship between the energy transition and tax revenue aggregates—including total, direct, indirect, and trade taxes—as well as fiscal effort. Results show a statistically significant and economically meaningful positive relationship between the energy transition and all tax revenue components. Further analysis suggests that this relationship operates through improved energy access, higher economic activity, productivity gains, and enhanced human development. These findings challenge concerns about potential fiscal burdens associated with the energy transition, indicating that green energy–oriented policies can strengthen fiscal sustainability in low- and middle-income countries and support inclusive energy and environmental tax reforms. Finally, we propose policy recommendations aimed at helping decision-makers in these countries reconcile environmental and budgetary challenges.