The Distributional Impact of Domestic Fuel Taxation

Antonia Cornwell and John Creedy
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Antonia Cornwell: University of Melbourne

Economic Analysis and Policy, 1996, vol. 26, issue 2, 129-143

Abstract: This paper attempts to estimate the regressivity and distributional impact of a domestic fuel tax in Australia, in both cross-sectional and life-cycle contexts. The question of whether a tax policy may attempt to compensate for the regressivity of a domestic fuel tax by redistributing the tax revenue in the form of increased transfer payments to those on low incomes is also considered. The paper focuses on 'impact effects' and does not account for behavioral responses. However, special emphasis is placed on lifetime incidence. The results suggest that, compared with a tax on food which is the most regressive of all consumption taxes, the impact effects on income distribution of introducing a tax on domestic fuel are likely to be small. Furthermore, when transfer payments are adjusted to maintain revenue-neutrality, the regressivity is more than compesated. The results hold in both cross-sectional and life-cycle contexts.

Keywords: Revenue; Tax; Taxation; Transfer Payments (search for similar items in EconPapers)
JEL-codes: H23 H24 H31 (search for similar items in EconPapers)
Date: 1996
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