The Effectiveness of Taxing Carbon Content of Energy Consumption

Suphi Sen and Herman R.J. Vollebergh

No 6003, CESifo Working Paper Series from CESifo

Abstract: We estimate the long-run effect of a uniform carbon tax on energy consumption by using a new and unique dataset in which effective tax rates of OECD countries are calculated in terms of carbon dioxide emissions. The effective tax rates account for the widely discussed tax deductions for specific energy tax bases leading to a careful calculation of net tax rates faced by agents. We argue that taxation might be endogenous to energy consumption in the long run. In order to identify a causal effect, we document a positive correlation between the tax rates of neighboring countries which we then exploit in our instrumental variables estimations. Validity of our identification strategy is consistent with the strategic inter-governmental interaction theo-ries that lead to a spatial pattern in local government policies in the presence of immobile tax bases. Our instrumental variables estimations indicate that taxing carbon content of energy use can be an effective instrument for climate policy.

Keywords: effective tax rates; energy taxation; energy consumption; carbon-dioxide emissions; IV estimation (search for similar items in EconPapers)
JEL-codes: C26 H23 Q41 Q48 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The effectiveness of taxing the carbon content of energy consumption (2018)
Working Paper: The effectiveness of taxing the carbon content of energy consumption (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6003

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