Energy Taxation in a Small, Open Economy: Efficiency Gains under Political Restraints

Geir H. Bjertnæs and Taran Fæhn
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Taran Fæhn: Statistics Norway, https://www.ssb.no/en/forskning/ansatte

Discussion Papers from Statistics Norway, Research Department

Abstract: Welfare analyses of energy taxes typically show that systems with uniform rates perform better than differentiated systems, especially if revenue increases can be recycled via cuts in more distortionary taxes. However, in the practical policy debates, the scope for efficiency gains is traded against industrial concerns. A major explanation to the widespread use of exemptions in energy tax systems has to be sought in the fact that energy-dependent industries tend to constitute powerful lobby groups. Presumably, energy-dependent industries of small, open economies will suffer relatively strongly if taxed, and compensating them will be costly. This CGE study of the case of equalising the Norwegian electricity tax shows that compensating the energy-intensive export industries is surprisingly modest. It is explained by the role of the Nordic electricity market, which is still limited enough to respond to national energy tax reforms. Thus, electricity price reductions partly neutralise the direct impact of the tax on profits. We also examine the effects of different compensation schemes and find significant compensation cost reductions when the scheme is designed to release productivity gains.

Keywords: Energy taxes; Electricity markets; Competitiveness; Compensation; CGE models (search for similar items in EconPapers)
JEL-codes: F41 H21 Q43 Q48 (search for similar items in EconPapers)
Date: 2004-08
New Economics Papers: this item is included in nep-pbe and nep-pol
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