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Estimates from a consumer demand system: implications for the incidence of environmental taxes

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  • West, Sarah E.
  • Williams, R.C.Roberton III

Abstract

Most studies suggest that environmental taxes are regressive, and thus are unattractive policy options. We consider the distributional effects of a gasoline tax increase using three welfare measures and under three scenarios for gas tax revenue use. To incorporate behavioral responses we use Consumer Expenditure Survey data to estimate a consumer demand system that includes gasoline, other goods, and leisure. We find that the gas tax is regressive, but that returning the revenue through a lump-sum transfer more than offsets this, yielding a net increase in progressivity. We also find that ignoring behavioral changes in distributional calculations overstates both the overall burden of the tax and its regressivity.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 47 (2004)
Issue (Month): 3 (May)
Pages: 535-558

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Handle: RePEc:eee:jeeman:v:47:y:2004:i:3:p:535-558

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Web page: http://www.elsevier.com/locate/inca/622870

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  1. Cornwell, Antonia & Creedy, John, 1997. "Measuring the Welfare Effects of Tax Changes Using the LES: An Application to a Carbon Tax," Empirical Economics, Springer, vol. 22(4), pages 589-613.
  2. James M. Poterba, 1991. "Is the Gasoline Tax Regressive?," NBER Working Papers 3578, National Bureau of Economic Research, Inc.
  3. J. Scott Shonkwiler & Steven T. Yen, 1999. "Two-Step Estimation of a Censored System of Equations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 972-982.
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  7. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  8. Sarah E. West & Roberton C. Williams III, 2004. "Empirical Estimates for Environmental Policy Making in a Second- Best Setting," Public Economics 0402005, EconWPA.
  9. Sipes, Kristin N. & Mendelsohn, Robert, 2001. "The effectiveness of gasoline taxation to manage air pollution," Ecological Economics, Elsevier, vol. 36(2), pages 299-309, February.
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  11. Elizabeth Symons & John Proops & Philip Gay, 1994. "Carbon taxes, consumer demand and carbon dioxide emissions: a simulation analysis for the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 15(2), pages 19-43, May.
  12. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
  13. Molly Espey, 1996. "Explaining the Variation in Elasticity Estimates of Gasoline Demand in the United States: A Meta-Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 49-60.
  14. Kayser, Hilke A., 2000. "Gasoline demand and car choice: estimating gasoline demand using household information," Energy Economics, Elsevier, vol. 22(3), pages 331-348, June.
  15. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September.
  16. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 735-757, March.
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