Economics at your fingertips  

Demand Shocks Change the Excess Burden From Carbon Taxes

Brandon Schaufele ()

MPRA Paper from University Library of Munich, Germany

Abstract: Two basic propositions underlying the economics of taxation -- that excess burdens increase in elasticities and tax rates -- are shown to cause the stringency of a Pigouvian tax to vary nonlinearly with output prices. This varying stringency of carbon taxation contributes to unfavorable competitiveness consequences following shocks to demand. Empirically, this paper measures the change in carbon tax stringency by structurally recovering the supply schedule for a particular industry such that elasticities and carbon tax rates change according to the distribution of output prices. Based on this supply function, the relationship between marginal excess burden, a measure of policy stringency from the industry's perspective, and product prices is estimated. Results for the Canadian cattle industry show that with moderately high output prices, supply elasticities are small, tax rates are low and the efficiency cost of a carbon tax (gross of environmental benefits), such as the one introduced in Canada, is less than \$0.01 per dollar tax revenue. As prices decline, supply curves become increasingly elastic, tax rates rise and marginal excess burdens grow rapidly.

Keywords: Carbon pricing; cattle; marginal excess burden; production function (search for similar items in EconPapers)
JEL-codes: H23 Q1 Q5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env, nep-pub and nep-reg
Date: 2019-02-08
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

Page updated 2019-09-17
Handle: RePEc:pra:mprapa:92132