Distributional and Welfare Impacts of Renewable Subsidies in Italy

54 Pages Posted: 24 May 2016

See all articles by Roberta Distante

Roberta Distante

University of Copenhagen - Department of Economics

Elena Verdolini

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change

Massimo Tavoni

Fondazione Eni Enrico Mattei (FEEM); Princeton University - Princeton Environmental Institute

Date Written: April 27, 2016

Abstract

We empirically assess the distributional impacts and welfare effects of policies to incentivize renewable electricity production for the case of Italy. We use data from the Household Budget Survey between 2000 and 2010 to estimate a demand system in which energy goods' shares of expenditure are modelled using different empirical approaches. We show that the general Exact Affine Stone Index (EASI) demand system provides more robust estimates of price elasticities of each composite good than the commonly used Almost Ideal Demand System (AIDS). The estimated coefficients are used to perform a welfare analysis of the Italian renewable electricity production incentive policy. We show that different empirical approaches give rise to significantly different estimates of price elasticities and that methodological choices are the reasons for the very high elasticities of substitutions estimated using similar data by previous contributions. We find no evidence of regressivity of the incidence of the Italian renewable incentive scheme in the period under consideration. The renewable subsidies act as a middle-class tax, with the higher welfare losses experienced by households in the second to fourth quintiles of the expenditure distribution.

Keywords: Energy taxes, Consumer Demand System, Welfare Effects, Equity

JEL Classification: D12, H22, Q48

Suggested Citation

Distante, Roberta and Verdolini, Elena and Tavoni, Massimo, Distributional and Welfare Impacts of Renewable Subsidies in Italy (April 27, 2016). FEEM Working Paper No. 36.2016, Available at SSRN: https://ssrn.com/abstract=2783675 or http://dx.doi.org/10.2139/ssrn.2783675

Roberta Distante (Contact Author)

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Elena Verdolini

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change ( email )

C.so Magenta 63
Milano, 20123
Italy

Massimo Tavoni

Fondazione Eni Enrico Mattei (FEEM) ( email )

Corso Magenta 63
20123 Milan
Italy

Princeton University - Princeton Environmental Institute

22 Chambers Street
Princeton, NJ 08544-0708
United States

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