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The effectiveness of taxing the carbon content of energy consumption

Suphi Sen and Herman R.J. Vollebergh

Journal of Environmental Economics and Management, 2018, vol. 92, issue C, 74-99

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.

Keywords: Effective tax rates; Energy taxation; Energy consumption; Carbon dioxide emissions; IV estimation (search for similar items in EconPapers)
JEL-codes: Q41 Q48 H23 C26 (search for similar items in EconPapers)
Date: 2018
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Working Paper: The effectiveness of taxing the carbon content of energy consumption (2018)
Working Paper: The Effectiveness of Taxing Carbon Content of Energy Consumption (2016) Downloads
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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