Does fuel tax decrease carbon dioxide emissions in Turkey? Evidence from an asymmetric nonlinear cointegration test and error correction model

Excise taxes on fuel consumption may serve an important role in the abatement of CO2 emissions. Fuel tax has been a significant revenue-raising tool in Turkey for years. The present paper investigates whether there is a relationship between carbon dioxide emissions and public revenues from excise taxes on fuel consumption in Turkey by employing an asymmetric nonlinear cointegration test and error correction model that is a novel methodology proposed by Hepsag Commun Stat-Simul Comp 50:400-412, (2021). We collect our sample that consists of annual data on CO2 emissions, GDP, and fuel tax in Turkey from 1985 to 2018. The empirical findings display that there exist relationships among economic growth, CO2 emissions, and fuel tax supporting the environmental Kuznets curve (EKC) hypothesis in the short and long run. However, we find out that fuel tax is statistically insignificant and has no impact on CO2 emissions. Because a significant carbon dioxide reduction is not possible by fuel taxation, by converting the excise tax on fuel consumption into a carbon tax, a considerable emission reduction can be provided efficiently.