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Energy Taxes and Household Compliance with the Kyoto Protocol

Universidad Rey Juan Carlos

José Félix Sanz-Sanz

Universidad Complutense de Madrid, jfelizs{at}ccee.ucm.es

The implementation of tax reforms to reduce carbon dioxide (CO₂) emissions has become increasingly popular. Nevertheless before prescribing these measures, they should be subject to a cost-benefit analysis. This paper evaluates the effects, in Spain, of a rise in the excise duties on energy to a level equal to the average of the EU-15. To this end, a complete demand model, comprising four energy products and fourteen nonenergy products, is estimated. The results indicate that such a reform, despite the fact that it would reduce CO₂ emissions by 11 million tons per year, would produce efficiency costs of 15.88¢ for each euro collected, causing households an average annual welfare loss of 228. Moreover, the progressivity and redistributive capacity of Spanish indirect taxation would be also reduced. As a result, the private welfare loss arising from the reform would be approximately four times greater than its estimated social benefits.

Key Words: energy • VAT • excise duties • elasticity • behavioral microsimulation

This version was published on March 1, 2009

Public Finance Review, Vol. 37, No. 2, 142-169 (2009)
DOI: 10.1177/1091142108327356


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