In Search of the double-dividend effect in South Africa: threshold impacts of environmental taxes on carbon emissions and economic growth

Abstract

This study examines the threshold effects at which environmental taxes simultaneously enhance economic growth and improve environmental quality in South Africa. Using data from 1994:Q1 to 2022:Q4, we estimate both kinked regressions and formal threshold regressions. The results indicate that environmental taxes foster economic growth (reduce emissions) when they remain below a threshold range of $6365–$6556 ($3320–$5980) million in revenue. Comparing the estimated thresholds with recent trends, we find that environmental taxes have been exceeded their thresholds since signing the Paris agreement in 2016. The key policy implication is that further increases in environmental taxes, such as the carbon tax, are likely to suppress economic growth and worsen environmental quality. Overall, our study highlights the importance of carefully calibrating environmental taxation and complementing it with policies that strengthen energy efficiency, renewable-energy capacity, and the economy’s ability to adjust.