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The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies

Sebastien Houde and Joseph Aldy ()
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Sebastien Houde: University of Maryland

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: The behavioral responses to taxes and subsidies are often subject to various behavioral biases and transaction costs—what we define as “microfrictions.†We develop a theoretical framework to show how these microfrictions—and their heterogeneity across the population and policy instruments—affect the design of Pigouvian policies. Standard Pigouvian pricing still holds with transaction costs, but requires adjustment with behavioral biases. We use transaction-level data from the US appliance market to estimate the heterogeneous behavioral responses to an array of energy fiscal policies and to quantify microfrictions. We then assess optimal fiscal policies and find that it is rarely optimal to couple a Pigouvian tax on energy with an investment subsidy in this context. We also find that energy labels—intended to increase the salience of energy information—can interact in perverse ways with both taxes and subsidies.

JEL-codes: H31 Q48 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-pbe and nep-reg
Date: 2017-12
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https://research.hks.harvard.edu/publications/getFile.aspx?Id=1608

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Working Paper: The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies (2017) Downloads
Working Paper: The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp17-047

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