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Measuring the Welfare Effects of Tax Changes Using the LES: An Application to a Carbon Tax

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  • Cornwell, Antonia
  • Creedy, John

Abstract

This paper explores the use of a parametric approach to the measurement of compensating and equivalent variations resulting from price changes. The approach is based on the application of the Linear Expenditure System (LES) to each of a range of household income groups, rather than being based on a "representative" consumer. The method is then used to examine the distributional effects of a carbon tax, designed to reduce carbon dioxide emissions. The price changes resulting from a carbon tax depend on the "carbon intensities" of each good, which depend in turn on the nature of inter-industry transactions (the input-output matrix). The use of transfer payments to compensate for adverse distributional effects of a carbon tax is investigated, using social welfare functions based on equivalent incomes.

Suggested Citation

  • Cornwell, Antonia & Creedy, John, 1997. "Measuring the Welfare Effects of Tax Changes Using the LES: An Application to a Carbon Tax," Empirical Economics, Springer, vol. 22(4), pages 589-613.
  • Handle: RePEc:spr:empeco:v:22:y:1997:i:4:p:589-613
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    Cited by:

    1. West, Sarah E. & Williams, R.C.Roberton III, 2004. "Estimates from a consumer demand system: implications for the incidence of environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 535-558, May.
    2. Peter Grösche & Carsten Schröder, 2014. "On the redistributive effects of Germany’s feed-in tariff," Empirical Economics, Springer, pages 1339-1383.
    3. repec:spr:jecstr:v:6:y:2017:i:1:d:10.1186_s40008-017-0091-x is not listed on IDEAS
    4. Parry, Ian & Walls, Margaret & Sigman, Hilary & Williams III, Roberton, 2005. "The Incidence of Pollution Control Policies," Discussion Papers dp-05-24, Resources For the Future.
    5. Bente Halvorsen, 2009. "Conflicting Interests in Environmental Policy-making?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(2), pages 287-305, October.
    6. Creedy, John & Sleeman, Catherine, 2006. "Carbon taxation, prices and welfare in New Zealand," Ecological Economics, Elsevier, vol. 57(3), pages 333-345, May.
    7. Ian Parry, 2015. "Carbon Tax Burdens on Low-Income Households: A Reason for Delaying Climate Policy?," CESifo Working Paper Series 5482, CESifo Group Munich.
    8. Sam Meng & Mahinda Siriwardana & Judith McNeill, 2013. "The Environmental and Economic Impact of the Carbon Tax in Australia," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(3), pages 313-332, March.
    9. Cristina Mohora & Ali Bayar & Masudi Opese & Frédéric Dramais, "undated". "Regional Effects of Carbon Taxes in Belgium," Energy and Environmental Modeling 2007 24000041, EcoMod.
    10. Araar, Abdelkrim & Dissou, Yazid & Duclos, Jean-Yves, 2011. "Household incidence of pollution control policies: A robust welfare analysis using general equilibrium effects," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 227-243, March.
    11. Corbett A. Grainger & Charles D. Kolstad, 2010. "Distribution and Climate Change Policies," Chapters,in: Climate Change Policies, chapter 7 Edward Elgar Publishing.
    12. Dorothée Boccanfuso & Antonio Estache & Luc Savard, 2008. "Distributional impact of global warming environmental policies: A survey," Cahiers de recherche 08-14, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.

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