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The Effectiveness of Taxing Carbon Content of Energy Consumption

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  • Suphi Sen
  • Herman R. J. Vollebergh

Abstract

We estimate the long-run effect of a uniform carbon tax on energy consumption by using a new and unique dataset in which effective tax rates of OECD countries are calculated in terms of carbon dioxide emissions. The effective tax rates account for the widely discussed tax deductions for specific energy tax bases leading to a careful calculation of net tax rates faced by agents. We argue that taxation might be endogenous to energy consumption in the long run. In order to identify a causal effect, we document a positive correlation between the tax rates of neighboring countries which we then exploit in our instrumental variables estimations. Validity of our identification strategy is consistent with the strategic inter-governmental interaction theo-ries that lead to a spatial pattern in local government policies in the presence of immobile tax bases. Our instrumental variables estimations indicate that taxing carbon content of energy use can be an effective instrument for climate policy.

Suggested Citation

  • Suphi Sen & Herman R. J. Vollebergh, 2016. "The Effectiveness of Taxing Carbon Content of Energy Consumption," CESifo Working Paper Series 6003, CESifo.
  • Handle: RePEc:ces:ceswps:_6003
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    3. Nadezhda V. Ponomareva & Anna O. Zvereva & Ekaterina V. Golubtsova & Svetlana B. Ilyashenko, 2019. "Tax Incentives for use of Alternative Energy Sources in the Russian Federation," International Journal of Energy Economics and Policy, Econjournals, vol. 9(4), pages 144-148.
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    7. Assaad Ghazouani & Wanjun Xia & Mehdi Ben Jebli & Umer Shahzad, 2020. "Exploring the Role of Carbon Taxation Policies on CO 2 Emissions: Contextual Evidence from Tax Implementation and Non-Implementation European Countries," Sustainability, MDPI, Open Access Journal, vol. 12(20), pages 1-16, October.

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    More about this item

    Keywords

    effective tax rates; energy taxation; energy consumption; carbon-dioxide emissions; IV estimation;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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