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Environmentally Related Energy Taxes in Argentina, Bolivia and Uruguay

  • Navajas, Fernando H.
  • Panadeiros, Monica
  • Natale, Oscar
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    We start addressing the performance of environmentally related taxes in Argentina, Bolivia and Uruguay and find differences in level and structure with OECD countries but with the common feature that energy taxes are prime contributors. We then model an energy tax reform process out a status quo and towards environmentally related excises, distinguishing between uniform and non-uniform tax components, positive and normative tax structures, and between non-Ramsey and Ramsey specifications. We implement the model after some effort to estimate local and global environmental costs related to energy consumption. We find a rebalancing of fuel taxes (where gasoline and diesel are main drivers) that is robust to the range of price-demand elasticity and environmental cost parameters. Environmental (almost local) gains of the reform are significant, while fiscal impacts are positive and large but do not allow to claim double dividend effects because of price increases of widespread energy inputs triggered by the reform exercise. In the case of Argentina and Bolivia pre-existing distortions in energy prices imply large increases in end-user prices to accommodate not only tax increases but also corrections of producer prices. The assessment of the distributional impact of tax reforms depends on its type (Non Ramsey vs. Ramsey) and on considering environmental benefits to compensate for negative price effects. A Non-Ramsey tax reform has a positive distributive impact in Uruguay, while large pre-existing price distortions tend to produce negative impacts in Argentina and Bolivia. Overall we recommend non-Ramsey taxes as they are more transparent and easy to implement, avoid inverse-elasticity effects on tax wedges that have nothing to do with environmental costs and have better distributional properties. Moving to multiple instruments is also recommended to integrate other externalities, deal with informality and cope with distributive impacts.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37829.

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    Date of creation: 02 Dec 2011
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    Handle: RePEc:pra:mprapa:37829
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    1. Don Fullerton & Inkee Hong & Gilbert E. Metcalf, 1999. "A Tax on Output of the Polluting Industry is Not a Tax on Pollution: The Importance of Hitting the Target," NBER Working Papers 7259, National Bureau of Economic Research, Inc.
    2. Luis A. Cifuentes & Alan J. Krupnick & Raúl O'Ryan & Michael Toman, 2005. "Urban Air Quality and Human Health in Latin America and the Caribbean," IDB Publications (Working Papers) 25378, Inter-American Development Bank.
    3. Navajas, Fernando & Porto, Alberto, 1994. "Budget shares, distributional characteristics and the direction of tax reform," Economics Letters, Elsevier, vol. 45(4), pages 475-479, August.
    4. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695.
    5. Ann Wolverton & Don Fullerton, 2003. "The Two-Part Instrument in a Second-Best World," NCEE Working Paper Series 200304, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2003.
    6. Peter A. Diamond, 1973. "Consumption Externalities and Imperfect Corrective Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 526-538, Autumn.
    7. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120.
    8. Mariana Conte Grand & Fabián Gaioli & Elizabeth Perone & Anna Sorensson & Tomas Svensson & Pablo Tarela, 2002. "Impacts of Greenhouse and Local Gases Mitigation Options on Air Pollution in the Buenos Aires Metropolitan Area: Valuation of Human Health Effects," CEMA Working Papers: Serie Documentos de Trabajo. 230, Universidad del CEMA.
    9. Navajas, Fernando H., 2009. "Engel curves, household characteristics and low-user tariff schemes in natural gas," Energy Economics, Elsevier, vol. 31(1), pages 162-168, January.
    10. Ian W.H. Parry & Jon Strand, 2011. "International Fuel Tax Assessment: An Application to Chile," IMF Working Papers 11/168, International Monetary Fund.
    11. Cont, Walter & Hancevic, Pedro & Navajas, Fernando H., 2011. "Energy populism and household welfare," MPRA Paper 35725, University Library of Munich, Germany.
    12. Guesnerie Roger, 1976. "On the direction of tax reform," CEPREMAP Working Papers (Couverture Orange) 7603, CEPREMAP.
    13. Sandmo, Agnar, 2000. "The Public Economics of the Environment," OUP Catalogue, Oxford University Press, number 9780198297987, July.
    14. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-46, December.
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