Unraveling the Relationship between Environmental Taxation and Trade: The Moderating Role of Judicial System within the Japanese context

Abstract

The efficacy of environmental taxation in achieving global emission reduction and its impact on economic performance have been widely debated, in the context of sustainable development. However, the role of the judiciary system's effectiveness as a moderating factor has been largely overlooked in previous studies. The current study examines the impact of green taxation on trade performance from two perspectives: firstly, the individual effect of environmental taxation on trade, and secondly, the moderating effect of the judiciary system on the relationship between environmental taxation and trade, with a focus on Japan. The study utilizes several factors, such as judicial independence, impartial courts, property rights protection, and legal enforcement of contracts, to represent the judiciary system. Autoregressive distributed lag methodology is employed to analyze the data. The findings reveal that the introduction of environmental taxation reduces Japanese trade both in the short and long run. However, the negative impact of environmental taxation on trade is balanced by the moderating effect of an effective judiciary system. The study suggests that the judiciary system can play a crucial role in mitigating the adverse effects of environmental taxation by ensuring that it is implemented equitably and efficiently, and by enforcing penalties on governments and corporations that violate environmental regulations.