The Effect of Electricity Taxation on the German Manufacturing Sector: A Regression Discontinuity Approach

46 Pages Posted: 20 Mar 2015

See all articles by Florens Flues

Florens Flues

Organization for Economic Co-Operation and Development (OECD)

Benjamin Johannes Lutz

ZEW – Leibniz Centre for European Economic Research

Date Written: February 18, 2015

Abstract

Germany taxes electricity use since 1999. The government granted reduced rates to energy intensive firms in the industrial sector for addressing potentially adverse effects on firms' competitiveness. Firms that use more electricity than certain thresholds established by legislation, pay reduced marginal tax rates. As a consequence, the marginal tax rate is a deterministic and discontinuous function of electricity use. We identify and estimate the causal effects of these reduced marginal tax rates on the economic performance of firms using a regression discontinuity design. Our econometric analysis relies on official micro-data at the plant and firm level collected by the German Federal Statistical Office that cover the whole manufacturing sector. We do not find any systematic, statistically significant effects of the electricity tax on firms' turnover, exports, value added, investment and employment. The results suggest that eliminating the reduced marginal electricity tax rates could increase revenues for the government without adversely affecting firms' economic performance.

Keywords: Efficiency of Environmental Taxes, Control of Externalities, Regression Discontinuity Design

JEL Classification: D22, H21, H23, Q41, Q48

Suggested Citation

Flues, Florens and Lutz, Benjamin Johannes, The Effect of Electricity Taxation on the German Manufacturing Sector: A Regression Discontinuity Approach (February 18, 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-013, Available at SSRN: https://ssrn.com/abstract=2580742 or http://dx.doi.org/10.2139/ssrn.2580742

Florens Flues

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Benjamin Johannes Lutz (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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