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The effectiveness of taxing the carbon content of energy consumption

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  • Sen, Suphi
  • Vollebergh, Herman
Abstract
We estimate the long-run effect of a broad-based carbon tax on energy consumption by using a new and unique cross-sectional dataset of effective energy tax rates of OECD countries. Our instrumental variables estimations, which exploit the positive correlation between the tax rates of neighboring countries, indicate a much higher effectiveness for carbon taxation than those from ordinary least square estimations. The validity of our identification strategy is consistent with the theories of strategic policy interaction in the presence of immobile tax bases. Our results show that a one euro increase in energy taxes reduces carbon emissions from fossil fuel consumption by 0.73 percent in the long run.

Suggested Citation

  • Sen, Suphi & Vollebergh, Herman, 2018. "The effectiveness of taxing the carbon content of energy consumption," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 74-99.
    • Handle: RePEc:eee:jeeman:v:92:y:2018:i:c:p:74-99
    DOI: 10.1016/j.jeem.2018.08.017
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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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