The Costs and Benefits of Supporting Data Centers: A General Equilibrium Analysis

9 Pages Posted: 16 Nov 2021

See all articles by Per-Olov Johansson

Per-Olov Johansson

Stockholm School of Economics

Bengt Kriström

SLU- Centre for Environmental and Resource Economics (CERE)

CERE Center for Environmental and Resource Economics

CERE

Date Written: November 15, 2021

Abstract

Large data centers enjoy government support in many countries. These centers are not laborintensive, but energy-intensive, thus tending to push up electricity prices and possibly crowding out labor-intensive firms. In addition, when owned by multinational companies, profits are difficult to tax in the country of residence. We look at the benefits and costs of supporting data centers in a general equilibrium setting. We assume that an energy tax is reduced as a way of supporting such centers. We show that the net benefits of this policy depends crucially, in general equilibrium, on the value of a tax elasticity. This result can be interpreted as a ”sufficient statistics” regarding the welfare impact of such a tax-reform (in the country where the tax exemption is made). We also show, by an example, that the approach can also given useful information (in the sense of ”sufficient statistics” literature) even when the change is non-marginal.

Keywords: General equilibrium welfare measurement, tax incentives, energy taxes, data centers, sufficient welfare statistics

JEL Classification: H25, D50, D61

Suggested Citation

Johansson, Per-Olov and Kriström, Bengt and Center for Environmental and Resource Economics, CERE, The Costs and Benefits of Supporting Data Centers: A General Equilibrium Analysis (November 15, 2021). Available at SSRN: https://ssrn.com/abstract=3963876 or http://dx.doi.org/10.2139/ssrn.3963876

Per-Olov Johansson

Stockholm School of Economics ( email )

P.O. Box 6501
Stockholm
SWEDEN
+46 8 736 92 82 (Phone)
+46 8 30 21 15 (Fax)

Bengt Kriström

SLU- Centre for Environmental and Resource Economics (CERE) ( email )

Umea, 901 83
Sweden
+46-(0)90-7865219 (Phone)

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