Income tax and renewable energy consumption in OECD countries: The influence of digitalization, globalization, and financial development

Despite extensive investigation into the factors driving the clean energy transition, the impact of income tax on renewable energy consumption (REC) has been overlooked. This study employs a newly compiled tax dataset covering OECD economies from 1990 to 2020 to investigate the influence of income tax on REC. The study also analyzes the moderating effects of digitalization, globalization, and financial development. Applying the Cross-Section Augmented Autoregressive Distributed Lag (CS-ARDL) model, the findings reveal that income tax exerts an adverse long-run effect on REC, indicating that higher income taxes discourage the adoption of renewable energy. Digitalization and globalization have positive and significant impacts on REC, while financial development shows a negative association. Moreover, the findings reveal that digitalization and globalization mitigate the adverse influence of income tax on REC, whereas the moderating effect of financial development is insignificant. Robustness checks using the Fully Modified Ordinary Least Squares (FMOLS) model support these findings. The study recommends that fostering technological advancement and globalization are crucial to enhancing the effectiveness of fiscal policy in accelerating the low-carbon transition across OECD economies.