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

Sarah E. West, Roberton C. Williams III

NBER Working Paper No. 9152
Issued in September 2002
NBER Program(s):The Public Economics Program

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.

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Document Object Identifier (DOI): 10.3386/w9152

Published: West, Sarah E. & Williams, R.C.Roberton III, 2004. "Estimates from a consumer demand system: implications for the incidence of environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 535-558, May. citation courtesy of

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