Are Environmental Taxes Solving Environmental Problems

Among different approaches to solving environmental issues, one of the most common is command and control mechanism featuring environmental taxes as one of the major tools. Even though theory suggests a Pigovian fee or tax is as efficient as other tools and guarantees equimarginality as well, the data yields a different picture. We investigate the EU countries both in terms of countries and NUTS 2 regions in order to establish weather environmental taxes meet their end of lower pollution or are environmental taxes just budgetary revenue. If environmental taxes are solving environmental problems revenues on this account should be decreasing, ceteris paribus. However, we find that this is not so for many EU member states, thus environmental taxation might be missing its target.