Taxes on Goods and Services and the Ecological Footprint: The Role of Digitalization

The increasing urgency of climate change amid a rapidly evolving digital transformation underscores the need for integrated fiscal and technological policy to mitigate environmental degradation. This study examines the association between taxes on goods and services (TGS) and ecological footprint (EFP), and evaluates the moderating role of digitalization. Using a newly compiled dataset for 96 countries over the period 2000–2022, the analysis employs a cross-sectionally augmented autoregressive distributed lag (CS-ARDL). The results reveal a significant negative long-run association between TGS and EFP, suggesting a potentially important link between TGS and ecological pressure. Digitalization is positively associated with EFP, while the interaction results indicate that greater digitalization is associated with a stronger negative relationship between TGS and EFP. However, heterogeneity analysis reveals that these relationships are more noticeable in higher-income economies, while they remain weaker in lower-income countries. Complementary estimations using Common Correlated Effects Mean Group (CCEMG) and Augmented Mean Group (AMG) estimators, along with an alternative measure of the key explanatory variable, yield consistent findings. Overall, the study highlights the potential importance of considering digitalization within fiscal policy frameworks aimed at supporting ecological sustainability.