CARBON TAXATION AND ECONOMIC GROWTH: A LONG-RUN ANALYSIS OF SWEDEN, FINLAND, AND DENMARK (1970– 2023) An Econometric Analysis of Carbon Pricing Policies and Their Implications for Sustainable Development

Abstract

This study investigates the long-term effects of carbon taxation on GDP growth in Sweden, Finland, and Denmark over the period 1970–2023. Employing time-series econometric models, the analysis examines both immediate and delayed impacts of carbon taxes, while controlling for macroeconomic variables such as trade openness and unemployment rates. By comparing these three Nordic pioneers in environmental taxation, the research provides insights into how carbon tax policies influence economic performance in diverse structural and policy contexts. The results reveal that carbon taxation has no statistically significant short-term effect on GDP growth in any of the three countries. However, delayed negative impacts are observed in Finland and Denmark, where the lagged models indicate significant economic pressures linked to carbon taxation. In Sweden, no significant relationship between carbon taxes and GDP growth is detected, suggesting that gradual implementation, pre-existing investments in renewable energy, and effective policy design have mitigated potential economic disruptions. These findings contribute to the broader debate on the economic feasibility of carbon taxation, emphasizing that its impacts are highly context dependent. While Sweden demonstrates the potential for achieving environmental goals without sacrificing economic stability, the experiences of Finland and Denmark underscore the importance of reinvestment strategies and complementary policies to offset economic costs. The study highlights the need for future research into sectoral dynamics and the role of policy frameworks in shaping the economic implications of carbon taxation. These insights provide valuable guidance for policymakers seeking to balance environmental objectives with economic resilience.