The Impact of Institutional Quality on the Relationships Between Environmental Taxes, Carbon Dioxide Emissions, and Economic Growth in Developing Countries

This study examines the heterogeneous relationship between environmental taxes, carbon dioxide (CO₂) emissions, and economic growth in 55 developing countries from 2012 to 2022. Additionally, it explores the role of institutional quality in shaping these relationships. Using quantile regression, the results reveal that environmental taxes have a stronger negative effect on growth at higher quantiles, while CO₂ emissions exhibit a consistently positive impact across all growth levels. Furthermore, the interaction between environmental taxes and institutional quality varies: at lower growth quantiles, the interaction has a negative effect, whereas at higher growth quantiles, the effect turns positive. In contrast, the interaction between institutional quality and CO₂ emissions is negative across all growth levels, supporting the "sand in the wheels" hypothesis of institutional quality in these countries. JEL Codes: H23; O11; O13; O43; O44