Welfare analyses of energy taxes typically show that systems with uniform rates perform better than differentiated systems, especially if revenue increases can be recycled via cuts in more distortionary taxes. However, in the practical policy debates, the scope for efficiency gains is traded against industrial concerns. A major explanation to the widespread use of exemptions in energy tax systems has to be sought in the fact that energy-dependent industries tend to constitute powerful lobby groups. Presumably, energy-dependent industries of small, open economies will suffer relatively strongly if taxed, and compensating them will be costly. This CGE study of the case of equalising the Norwegian electricity tax shows that compensating the energy-intensive export industries is surprisingly modest. It is explained by the role of the Nordic electricity market, which is still limited enough to respond to national energy tax reforms. Thus, electricity price reductions partly neutralise the direct impact of the tax on profits. We also examine the effects of different compensation schemes and find significant compensation cost reductions when the scheme is designed to release productivity gains.
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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number
387.
Find related papers by JEL classification: F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
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