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Estimates from a Consumer Demand System: Implications for the Incidence of Environmental Taxes

Listed author(s):
  • Sarah E. West
  • Roberton C. Williams 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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File URL: http://www.nber.org/papers/w9152.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9152.

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Date of creation: Sep 2002
Publication status: published as 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.
Handle: RePEc:nbr:nberwo:9152
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