Energy Tax Reform with Vertical Tax Externalities

28 Pages Posted: 27 Sep 2005

See all articles by Bert Saveyn

Bert Saveyn

Catholic University of Leuven (KUL)

Stef Proost

KU Leuven - Department of Economics

Date Written: July 2005


The paper is a general equilibrium analysis of an energy tax reform in a federation. It gives us a tool to measure the welfare effects and the vertical tax externalities of the tax reform. Vertical tax externalities may arise when two government levels impose taxes on common tax bases. We show how the magnitude and sign of the vertical externality depend on the environmental goal, the tax-recycling scenario, the initial local and federal tax shares, and the size of the federation. Simulations illustrate the effects for a small European federation (e.g. Belgium) and a large federation (e.g. US).

Keywords: Tax Reform, Vertical tax Externality, Federalism

JEL Classification: H23, H77

Suggested Citation

Saveyn, Bert and Proost, Stef V., Energy Tax Reform with Vertical Tax Externalities (July 2005). Available at SSRN: or

Bert Saveyn (Contact Author)

Catholic University of Leuven (KUL) ( email )

Oude Markt 13
Leuven, Vlaams-Brabant

Stef V. Proost

KU Leuven - Department of Economics ( email )

Leuven, B-3000
016 32 66 35 (Phone)
016 32 67 96 (Fax)

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