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Income, Energy Taxation, and the Environment: An Econometric Analysis


  • Ghalwash, Tarek

    () (Department of Economics, Umeå University)


This thesis consists of four papers: two of them deal with the relationship between consumption, energy taxation, and emissions on macro level, and two of them focus on the effects of changes in consumption and income on the environmental quality on a micro level. The main objective of paper [I] is to examine how exogenous technological progress, in terms of an increase in energy efficiency, affects consumption choice by Swedish households and thereby emissions of carbon dioxide (CO2), sulphur dioxide (SO2) and nitrogen oxide (NOx). The aim of the paper is closely related to the discussion of what is known as the “rebound effect”. To neutralize the rebound effect, we estimate the necessary change in CO2 tax, i.e. the CO2 tax that keeps CO2 emissions at their initial level. In addition, we estimate how this will affect emissions of sulphur dioxide and nitrogen oxides. The results indicate that an increase in energy efficiency of 20 percent will increase emissions of CO2 by approximately 5 percent. To reduce the CO2 emissions to their initial level, CO2 tax must be raised by 130 percent. This tax increase will reduce the emissions of sulphur dioxide to below their initial level, but will leave the emissions of nitrogen oxides at a higher level than initially. One of the premises implied in paper [II] is that the changes in consumer prices, as a result of changes in environmental taxes, may send a different signal to the consumer compared with other changes in consumer prices, such as changes in producer price. In addition, this assumed difference in the signaling effect of the changes in environmental taxes, compared to changes in the producer price, may also differ between different commodities. To achieve the objectives a system of demand functions for Swedish households is estimated. To test for the signaling effect of environmental taxes the consumer price for energy goods is partitioned into a producer price part and a tax part. In Paper [III], we estimate the income elasticity of demand for recreational services and other traditional groups of goods in Sweden and we test for potential changes in such estimates over the twentieth century. The paper uses Swedish household surveys for the years 1913, 1984, 1988, and 1996. Because of the difficulty of directly observing the demand for recreational services, we employ an indirect methodology by using the demand for some outdoor goods as proxies for the recreational services demand. In paper [IV], we investigate the relationship between pollution and income at the household level. Here we want to investigate, and hence contribute to the existing literature, under what conditions concerning individual preferences and the link between consumption and pollution a linear relationship is to be expected, but also to empirically assess the relationship. To achieve our objective we formulate a model determining different type of households’ choice of consumption for goods. Furthermore we link the demand model to emission functions for the various goods. The results from the empirical analysis show that, at least in a close neighborhood of observed income/pollution, we can reject linearity for all three types of pollutions, CO2, SO2, and NOx. According to our results the pollution/income relationships are all strictly concave. Thus the implication is that the income distribution seems to matter in the sense that equalization of income will lead to higher emissions. Furthermore it is shown that the slope as well as the curvature differ between different types of households, which means that preferences differ across households. Keywords: Household consumption, energy demand, emissions, rebound effect, energy taxation, tax elasticities, environmental services, income elasticities, Engel Curves, income distribution.

Suggested Citation

  • Ghalwash, Tarek, 2006. "Income, Energy Taxation, and the Environment: An Econometric Analysis," Umeå Economic Studies 678, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0678

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    References listed on IDEAS

    1. McDonald, James B, 1984. "Some Generalized Functions for the Size Distribution of Income," Econometrica, Econometric Society, vol. 52(3), pages 647-663, May.
    2. Grossman, G.M & Krueger, A.B., 1991. "Environmental Impacts of a North American Free Trade Agreement," Papers 158, Princeton, Woodrow Wilson School - Public and International Affairs.
    3. Stern , David I., 1998. "Progress on the environmental Kuznets curve?," Environment and Development Economics, Cambridge University Press, vol. 3(02), pages 173-196, May.
    4. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 353-377.
    5. Theodore Panayotou, 2000. "Economic Growth and the Environment," CID Working Papers 56, Center for International Development at Harvard University.
    6. McCONNELL, KENNETH E., 1997. "Income and the demand for environmental quality," Environment and Development Economics, Cambridge University Press, vol. 2(04), pages 383-399, November.
    7. Ghalwash, Tarek, 2006. "Demand for Environmental Quality: An Empirical Analysis of Consumer Behavior in Sweden," Umeå Economic Studies 676, Umeå University, Department of Economics.
    8. Selden Thomas M. & Song Daqing, 1995. "Neoclassical Growth, the J Curve for Abatement, and the Inverted U Curve for Pollution," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 162-168, September.
    9. Bimonte, Salvatore, 2002. "Information access, income distribution, and the Environmental Kuznets Curve," Ecological Economics, Elsevier, vol. 41(1), pages 145-156, April.
    10. Lopez Ramon, 1994. "The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 163-184, September.
    11. Andreoni, James & Levinson, Arik, 2001. "The simple analytics of the environmental Kuznets curve," Journal of Public Economics, Elsevier, vol. 80(2), pages 269-286, May.
    12. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    13. Heerink, Nico & Mulatu, Abay & Bulte, Erwin, 2001. "Income inequality and the environment: aggregation bias in environmental Kuznets curves," Ecological Economics, Elsevier, vol. 38(3), pages 359-367, September.
    14. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Raattamaa, Tomas, 2016. "Essays on Delegated Search and Temporary Work Agencies," Umeå Economic Studies 935, Umeå University, Department of Economics.

    More about this item


    Household consumption; energy demand; emissions; rebound effect; energy taxation; tax elasticities; environmental services; income elasticities; Engel Curves; income distribution;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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