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

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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