Tax evasion and climate change: A literature review on how fiscal non-compliance undermines environmental sustainability and reporting

Abstract

Tax evasion and climate change are usually examined in separate domains, public finance and environmental policy. Yet growing scholarship highlights their intersection: fiscal non-compliance undermines governments’ ability to fund and enforce effective climate action. This paper reviews literature linking tax evasion to climate change across four dimensions: the erosion of fiscal space, the shadow economy’s environmental harm, corporate tax avoidance and weak environmental, social and governance (ESG) performance, and the role of tax havens in financing polluting activities. The review finds that tax evasion reduces the fiscal capacity needed for climate mitigation and adaptation, sustains shadow economy activities that contribute to deforestation and pollution, and is consistently associated with weaker corporate environmental and sustainability practices. It also shows that tax havens facilitate the financing and concealment of environmentally destructive operations, thereby weakening global environmental governance. The review contributes by synthesizing fragmented debates into a unified framework and identifying gaps, including limited cross-country evidence and weak integration of tax compliance into climate finance. It concludes that combating tax evasion is not only a fiscal priority but also a climate imperative.

Keywords: Tax Evasion, Climate Change, Fiscal Non-Compliance, Sustainability, Shadow Economy, Climate Finance, ESG, Tax Havens

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: H21, H26, H30, H32, Q01, Q54, Q58

Received: 29.09.2025
Revised: 24.10.2025; 18.11.2025
Accepted: 05.12.2025
Published online: 08.12.2025

How to cite this paper: Guidara, A. (2025). Tax evasion and climate change: A literature review on how fiscal non-compliance undermines environmental sustainability and reporting. Reporting and Accountability Review, 2(2), 20–25. https://doi.org/10.22495/rarv2i2p2