Energy Taxes and Aggregate Economic Activity
AbstractThis paper shows that the output losses from energy taxes are significantly larger than usually computed when due account is taken of imperfect competition among energy using firms. Even with perfect competition among these firms, the loss in GNP is of the same order of magnitude as the revenue raised by these taxes. However, in the presence of imperfect competition the output losses are much higher. There are particularly large transitory losses in the immediate aftermath of energy price increases when firms act as implicitly colluding oligopolists. These losses become considerably smaller if energy taxes are phased-in. We also show that taxes that affect only household consumption of energy have much smaller effects. In particular, for the empirically plausible parameter values we consider, such taxes have no effect on employment or output in the non-energy sector.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4576.
Date of creation: Dec 1993
Date of revision:
Publication status: published as Julio I. Rotemberg, Michael Woodford. "Energy Taxes and Aggregate Economic Activity," in James M. Poterba, editor, "Tax Policy and the Economy, Volume 8" MIT Press (1994)
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Other versions of this item:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
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