Estimates from a Consumer Demand System: Implications for the Incidence of Environmental Taxes

39 Pages Posted: 6 Sep 2002 Last revised: 1 Jul 2014

See all articles by Sarah E. West

Sarah E. West

Macalester College Dept. of Economics

Roberton C. Williams

University of Maryland - Department of Agricultural & Resource Economics; National Bureau of Economic Research (NBER); Resources for the Future

Date Written: September 2002

Abstract

Most studies suggest that environmental taxes are regressive, and thus are unattractive policy options. We consider the distributional effects of a gasoline tax increase using three welfare measures and under three scenarios for gas tax revenue use. To incorporate behavioral responses we use Consumer Expenditure Survey data to estimate a consumer demand system that includes gasoline, other goods, and leisure. We find that the gas tax is regressive, but that returning the revenue through a lump-sum transfer more than offsets this, yielding a net increase in progressivity. We also find that ignoring behavioral changes in distributional calculations overstates both the overall burden of the tax and its regressivity.

Suggested Citation

West, Sarah E. and Williams, Roberton C., Estimates from a Consumer Demand System: Implications for the Incidence of Environmental Taxes (September 2002). NBER Working Paper No. w9152, Available at SSRN: https://ssrn.com/abstract=328699

Sarah E. West

Macalester College Dept. of Economics ( email )

1600 Grand Ave.
Saint Paul, MN 55105
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651-696-6482 (Phone)

HOME PAGE: http://www.macalester.edu/~wests

Roberton C. Williams (Contact Author)

University of Maryland - Department of Agricultural & Resource Economics ( email )

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University of Maryland
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National Bureau of Economic Research (NBER) ( email )

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HOME PAGE: http://www.nber.org/cgi-bin/familyinfo.pl?a=a&user=roberton_williams

Resources for the Future ( email )

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