The distributional effects of carbon and energy taxes: The cases of France, Spain, Italy, Germany and UK

Abstract:

This paper examines the likely immediate impact effect of some pollution taxes on the tax burden of households in a number of European countries. The total effect on households of such taxes is assessed using input-output analysis. Thus both the direct effect of taxes, through increased fuel prices, and the indirect effect, through increased prices of other goods, can be assessed simultaneously. This input-output approach allows the generation of direct plus indirect pollution intensities for all household consumption categories, for, in principle, a number of pollutants (CO2, SO2, NOx, particulates). These intensities could then be used to assess the impact on households of pollution taxes. This paper concentrates on CO2 and energy, performing a static analysis of the effect of a tax on the carbon or energy content of goods using the known consumption patterns for the various countries, both in aggregate and for different income groups. This allows a first assessment of the regressive/progressive effects of such taxes and an indication of consumer welfare loss.