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Energy Taxes in Three Political Economy Models

Author

Listed:
  • Cremer Helmuth

    (Toulouse School of Economics (GREMAQ, IDEI and Institut universitaire de France))

  • De Donder Philippe

    (Toulouse School of Economics (GREMAQ-CNRS and IDEI))

  • Gahvari Firouz

    (University of Illinois at Urbana-Champaign)

Abstract

What accounts for the existence of positive energy taxes in the US, given that such taxes are regressive and that the income distribution is skewed to the right? The traditional majority-voting equilibrium approach suggests a subsidy; thus we also look at two alternatives. These are the probabilistic-voting model and Roemer's (2001) model of political competition with the "Party Unanimity Nash Equilibrium" (PUNE) as the equilibrium solution concept. Our economic model is calibrated on the basis of the US data. The paper shows that while the majority-voting approach calls for a massive subsidy, the PUNE approach leads to huge environmental taxes. Our tentative results suggest that the probabilistic model, wherein parties assume that the proportion of unbiased voters is the same in all categories of income, comes closest to explaining the observed US energy taxes.

Suggested Citation

  • Cremer Helmuth & De Donder Philippe & Gahvari Firouz, 2007. "Energy Taxes in Three Political Economy Models," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-29, July.
    • Handle: RePEc:bpj:bejeap:v:7:y:2007:i:1:n:32
    DOI: 10.2202/1935-1682.1707
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    Cited by:

    1. Habla, Wolfgang & Roeder, Kerstin, 2017. "The political economy of mitigation and adaptation," European Economic Review, Elsevier, vol. 92(C), pages 239-257.
    2. Cremer, Helmuth & De Donder, Philippe & Gahvari, Firouz, 2008. "Political competition within and between parties: An application to environmental policy," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 532-547, April.
    3. Vincent Anesi & Philippe De Donder, 2011. "Secondary issues and party politics: an application to environmental policy," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 36(3), pages 519-546, April.
    4. Habla, Wolfgang & Roeder, Kerstin, 2013. "Intergenerational aspects of ecotax reforms – An application to Germany," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 301-318.

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