Firm's Imperfect Compliance and Pollution Emissions: Theory and Evidence from South Africa

Abstract

Carbon emissions exacerbate global climate change. Transitioning away from coal is a cost-effective path to a low-carbon economy. Although many articles have considered the issue of manufacturers' production and emission of pollution. Few papers have discussed the impact of environmental tax and fuel tax on the cost of environmental degradation. This paper seeks to fill this gap by developing a theoretical model to discuss the relationship between environmental pollution and economic growth. Furthermore, in order to support the theoretical results and testify the relationship between carbon emissions and taxation, we take South Africa as a case for discussing the effect of environmental taxation and fuel levy on firms' carbon emissions. We show that the impact of environmental taxes on carbon dioxide emissions is greater than that of fuel taxes on carbon dioxide emissions. In addition, we find that the GDP level of South Africa is on the left of the inflection points of Kuznets Curve. In other words, the current growth of South Africa's economy is at the cost of worsening the environmental degradation.