THE EFFECTIVENESS OF GREEN TAXES: A COMPARATIVE STUDY OF ENVIRONMENTAL POLICY INSTRUMENTS

Abstract

  This study evaluates the structural efficacy and economic outcomes of environmental taxationpopularly conceptualized as green taxes—in comparison with alternate policy instruments, specifically Command-and-Control (CAC) frameworks and cap-and-trade market mechanisms. Grounded in Pigouvian welfare economics, green taxes aim to internalize negative externalities by aligning private costs with social marginal costs. Using historical global macroeconomic and environmental dataset aggregates up to the fiscal baseline of 2022, this paper examines the performance indices of market-based reforms across various jurisdictions, with special emphasis on the European Union's carbon tax structures and emerging fiscal adjustments. The empirical findings indicate that while green taxes demonstrate superior cost-efficiency and foster long-term dynamic incentives for technological innovation, their real-world impact is heavily moderated by structural features such as price elasticity of demand, political economy vulnerabilities, and regressive distributional impacts. The study demonstrates that the 'Double Dividend' hypothesis is empirically valid only when tax revenues are intentionally recycled into lowering distortionary labor or capital taxes. Finally, a strategic policy framework is proposed to optimize fiscal models for sustainable growth within contemporary market ecosystems.