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Welfare effects of carbon taxation on South African households

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  • Okonkwo, Jennifer Uju

Abstract

This paper evaluates the welfare impacts of carbon taxation on South African households. Using household survey data for the period 2009–2015, I estimate the Quadratic Almost Ideal Demand System (QUAIDS) model to obtain elasticities and use them to simulate consumer responses to price changes resulting from carbon taxation. Results show that an increase in electricity and public transport prices following a carbon tax policy is regressive while a price increase in motor fuel is progressive. In addition, when there is a simultaneous increase in the prices of energy goods, the poorest and middle income households disproportionately suffer a higher welfare loss compared to the richest households. I also show that income is important in determining whether rural households experience a higher or lower welfare loss than urban households. Furthermore, revenue recycling in terms of lump-sum transfers of the tax revenue to households below the national poverty lines and the bottom 40% would offset the welfare loss from a carbon tax policy in South Africa.

Suggested Citation

  • Okonkwo, Jennifer Uju, 2021. "Welfare effects of carbon taxation on South African households," Energy Economics, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:eneeco:v:96:y:2021:i:c:s0140988320302437
    DOI: 10.1016/j.eneco.2020.104903
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    2. Gordic, Dusan & Nikolic, Jelena & Vukasinovic, Vladimir & Josijevic, Mladen & Aleksic, Aleksandar D., 2023. "Offsetting carbon emissions from household electricity consumption in Europe," Renewable and Sustainable Energy Reviews, Elsevier, vol. 175(C).
    3. Abigail Opokua Asare & Laura Schuerer, 2024. "Incidence of Carbon Pricing in Tanzania: Using Revenues to Empower Low-IncomeHouseholds with Renewable Energy," Working Papers V-446-24, University of Oldenburg, Department of Economics, revised Jul 2024.
    4. Wu, Libo & Zhang, Shuaishuai & Qian, Haoqi, 2022. "Distributional effects of China's National Emissions Trading Scheme with an emphasis on sectoral coverage and revenue recycling," Energy Economics, Elsevier, vol. 105(C).
    5. Margaret Walls & Matthew Ashenfarb, 2022. "Efficiency and Equity of an Outdoor Recreation Equipment Tax to Fund Public Lands," Land Economics, University of Wisconsin Press, vol. 98(3), pages 520-536.

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    More about this item

    Keywords

    Welfare; Carbon tax policy; South Africa; Household;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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