Green Fiscal Instruments and the Circular Economy Transition in the EU-27: Does the Structure of Environmental Taxation Matter?

Abstract

The European Union aims to double circular material use by 2030, yet the rate reached only 12.2% in 2024, and environmental tax revenue remains dominated by energy taxes. This article examines whether the composition and timing of environmental taxation and agricultural specialisation are associated with the circular transition. Using an unbalanced EU-27 panel for 2010–2024 (CMUR and recycling) and 2005–2023 (economic indicators), this study estimates two-way fixed-effects lagged and interaction models with Eurostat data. The aggregate environmental tax revenue share shows no systematic association with the five circular outcomes. Disaggregated results show that energy tax revenue is associated with lower private investment in circular sectors, transport tax revenue with higher municipal waste recycling, and pollution tax revenue with a weak increase in circular sector gross value added. Resource tax coefficients are statistically insignificant and imprecisely estimated. Lagged models reveal different patterns across outcomes but no common transmission horizon. The associations of the aggregate tax revenue share with recycling and circular employment weaken as agricultural specialisation increases. However, the associations lose statistical significance when country-specific linear trends are included. The findings suggest that tax composition and economic context are more informative than the aggregate tax burden, while the observational design and sensitivity of the results require cautious policy interpretation.