Impact of Climate Change on Economic Growth in Southeast Asia: The Role of Tax Policy

Abstract

Background: Climate change poses a significant threat to agriculture, water supplies, and economic growth worldwide. Southeast Asia is vulnerable to climate change, threatening fisheries, tourism, and agriculture with rising temperatures, intense weather, and sea-level rise.

Objective: This study aims to investigate the impact of climate change on economic growth in Southeast Asian countries, including the implications of climate change-related taxation policies.

Methodology: This study employs a quantitative econometric approach using a balanced panel dataset covering 10 Southeast Asian countries from 1990 to 2018. Key variables include CO₂ emissions, sea level rise, pesticide use, and various tax policy indicators. The analysis applies the Feasible Generalised Least Squares (FGLS) regression method to address heteroskedasticity and serial correlation issues, allowing for a robust estimation of the impact of climate change indicators and their interaction with climate-related tax policies on economic growth.

Result: Results confirmed that tax policies moderate the relationship between climate change factors and economic growth, including climate taxes, environmental pollution taxes, and air pollution taxes. Climate change negatively affects economic growth in Southeast Asia, especially through CO₂ emissions, sea-level rise, and pesticide use. These factors disrupt key sectors such as agriculture, stocks, and tourism.

Conclusion: Tax policies are essential in alleviating the negative impacts of climate change on economic development. The result provides policy recommendations to alleviate the adverse effects of climate change on economic growth.

Unique Contribution: This study  highlight the trade-offs between economic growth and environmental policies in Southeast Asia, emphasising the need for balanced tax policies to mitigate climate change while ensuring economic stability and offering new insights into policy environment growth dynamics.

Key Recommendation: Implementing balanced tax policies, promoting sustainable agriculture, and strengthening institutional stability can foster both economic resilience and environmental sustainability. Tax policy recommendations aim to balance economic growth with environmental sustainability, ensuring that Southeast Asian nations implement effective climate policies while fostering long-term prosperity.