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Environmentally Related Energy Taxes in Argentina, Bolivia and Uruguay

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  • Navajas, Fernando H.
  • Panadeiros, Monica
  • Natale, Oscar
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    Abstract

    We start addressing the performance of environmentally related taxes in Argentina, Bolivia and Uruguay and find differences in level and structure with OECD countries but with the common feature that energy taxes are prime contributors. We then model an energy tax reform process out a status quo and towards environmentally related excises, distinguishing between uniform and non-uniform tax components, positive and normative tax structures, and between non-Ramsey and Ramsey specifications. We implement the model after some effort to estimate local and global environmental costs related to energy consumption. We find a rebalancing of fuel taxes (where gasoline and diesel are main drivers) that is robust to the range of price-demand elasticity and environmental cost parameters. Environmental (almost local) gains of the reform are significant, while fiscal impacts are positive and large but do not allow to claim double dividend effects because of price increases of widespread energy inputs triggered by the reform exercise. In the case of Argentina and Bolivia pre-existing distortions in energy prices imply large increases in end-user prices to accommodate not only tax increases but also corrections of producer prices. The assessment of the distributional impact of tax reforms depends on its type (Non Ramsey vs. Ramsey) and on considering environmental benefits to compensate for negative price effects. A Non-Ramsey tax reform has a positive distributive impact in Uruguay, while large pre-existing price distortions tend to produce negative impacts in Argentina and Bolivia. Overall we recommend non-Ramsey taxes as they are more transparent and easy to implement, avoid inverse-elasticity effects on tax wedges that have nothing to do with environmental costs and have better distributional properties. Moving to multiple instruments is also recommended to integrate other externalities, deal with informality and cope with distributive impacts.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37829.

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    Date of creation: 02 Dec 2011
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    Handle: RePEc:pra:mprapa:37829

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    Keywords: environmental taxes; energy; tax models;

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    1. Don Fullerton & Inkee Hong & Gilbert E. Metcalf, 1999. "A Tax on Output of the Polluting Industry is Not a Tax on Pollution: The Importance of Hitting the Target," NBER Working Papers 7259, National Bureau of Economic Research, Inc.
    2. Navajas, Fernando & Porto, Alberto, 1994. "Budget shares, distributional characteristics and the direction of tax reform," Economics Letters, Elsevier, vol. 45(4), pages 475-479, August.
    3. Guesnerie, Roger, 1977. "On the direction of tax reform," Journal of Public Economics, Elsevier, vol. 7(2), pages 179-202, April.
    4. Navajas, Fernando H., 2009. "Engel curves, household characteristics and low-user tariff schemes in natural gas," Energy Economics, Elsevier, vol. 31(1), pages 162-168, January.
    5. Luis A. Cifuentes & Alan J. Krupnick & Ra�l O'Ryan & Michael A. Toman, 2005. "Urban Air Quality and Human Health in Latin America and the Caribbean," Documentos de Trabajo 212, Centro de Economía Aplicada, Universidad de Chile.
    6. Mariana Conte Grand & Fabián Gaioli & Elizabeth Perone & Anna Sorensson & Tomas Svensson & Pablo Tarela, 2002. "Impacts of Greenhouse and Local Gases Mitigation Options on Air Pollution in the Buenos Aires Metropolitan Area: Valuation of Human Health Effects," CEMA Working Papers: Serie Documentos de Trabajo. 230, Universidad del CEMA.
    7. Parry, Ian & Strand, Jon, 2010. "International Fuel Tax Assessment: An Application to Chile," Discussion Papers dp-10-07, Resources For the Future.
    8. Peter A. Diamond, 1973. "Consumption Externalities and Imperfect Corrective Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 526-538, Autumn.
    9. Ann Wolverton & Don Fullerton, 2003. "The Two-Part Instrument in a Second-Best World," NCEE Working Paper Series 200304, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2003.
    10. Sandmo, Agnar, 2000. "The Public Economics of the Environment," OUP Catalogue, Oxford University Press, number 9780198297987, September.
    11. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-46, December.
    12. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695.
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