The environmental impact of institutional quality and environmental policy instruments

Abstract: While previous research has focused on the bivariate relationships between environmental policy instruments, CO2 emissions and corruption, a study looking at the combination of the components while examining the direct impact on CO2 emissions is missing. This thesis examines whether corruption moderates the relationship between climate change-related tax and CO2 emission levels. By arguing that the innovation and behavioral change that environmental policy instruments normally incite, are disrupted by corruption and its hampering effect on innovation, embezzlement, free-riding and non-compliance - the thesis hypothesizes that higher levels of climate change-related tax will show a decreasing effect on CO2 emission levels - and further that the presence of corruption will reduce this decreasing effect. Conducting time-series analysis with panel data that covers 196 countries from 1992- 2020, the result of the study indicates no support for any of the hypotheses. Based on the findings, an improved model that can better capture the effect of corruption without being overshadowed by the high influence of economic growth on CO2 emissions is suggested.