Greenflation or greensulation? An examination of the disaggregated inflationary effect of environmental taxes in the EU-27

Paper Details

Authors: Olasehinde-Williams G.

DOI: 10.1016/j.igd.2026.100333

Journal: Innovation and Green Development

Year: 2026

Publisher: Elsevier B.V.

Document Type: Article

Open Access: All Open Access; Gold Open Access; Green Open Access

Cited by: 0

Abstract

Can environmental taxes help to mitigate inflation? This study explores the impact of environmental taxes, as market-based instruments, on inflation across the EU-27 from 2010 to 2022 within a panel data analysis framework. Results show that environmental taxes lower headline inflation, a stabilizing effect termed greensulation. This holds even when food and energy prices are excluded. The analysis also finds that environmental taxes mitigate food and energy inflation when examined separately. The greensulation effect is notably stronger in countries with higher headline, food, and energy inflation and lower core inflation. Furthermore, environmental taxes significantly predict future inflation trends, albeit in a heterogeneous manner. A key implication of the findings is that environmental taxes do not complicate monetary policy but rather act as shock absorbers, reducing inflation variability. The findings also dispel concerns about greenflation, demonstrating that environmental taxes are effective in advancing the European Green Deal without triggering inflationary pressures. © 2026 The Author

Keywords

Environmental tax; EU-27; Greenflation; Greensulation; Inflation; Panel quantile regression

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