Assessing the impact of green taxation on environmental and economic performance: The moderating effect of foreign direct investment attractiveness - across countries analysis

Abstract

This study investigates the effects of green taxation and foreign direct investment (FDI) on both environmental and economic performance, testing four key hypotheses. The first hypothesis (H1) posits that green taxes have a significant effect on the environmental performance of countries, while the second (H2) hypothesizes that green taxes influence economic performance. Additionally, the third hypothesis (H3) examines whether FDI moderates the relationship between green taxes and environmental performance, and the fourth (H4) assesses whether FDI moderates the relationship between green taxes and economic performance. Using data from 154 countries in 2022 and applying Structural Equation Modeling (SEM) with AMOS 21, the results reveal that green taxation positively affects environmental performance (Estimate = 0.174, p = 0.030), though it does not significantly impact economic performance (Estimate = -0.109, p = 0.171).However, FDI significantly moderates the relationship between green taxation and economic performance (Estimate = -0.150, p = 0.002) , The negative estimate highlights that the moderating effect of FDI on this relationship is associated with a reduction in economic performance as green taxation increases.. This study addresses a gap in the literature by emphasizing the importance of FDI in evaluating the efficacy of green taxation. The findings suggest that policymakers should incorporate FDI into environmental initiatives to enhance sustainable development.