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Measuring the Welfare Effects of Tax Changes Using the LES: An Application to a Carbon Tax

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  • Cornwell, Antonia
  • Creedy, John

Abstract

This paper explores the use of a parametric approach to the measurement of compensating and equivalent variations resulting from price changes. The approach is based on the application of the Linear Expenditure System (LES) to each of a range of household income groups, rather than being based on a "representative" consumer. The method is then used to examine the distributional effects of a carbon tax, designed to reduce carbon dioxide emissions. The price changes resulting from a carbon tax depend on the "carbon intensities" of each good, which depend in turn on the nature of inter-industry transactions (the input-output matrix). The use of transfer payments to compensate for adverse distributional effects of a carbon tax is investigated, using social welfare functions based on equivalent incomes.

Suggested Citation

  • Cornwell, Antonia & Creedy, John, 1997. "Measuring the Welfare Effects of Tax Changes Using the LES: An Application to a Carbon Tax," Empirical Economics, Springer, vol. 22(4), pages 589-613.
    • Handle: RePEc:spr:empeco:v:22:y:1997:i:4:p:589-613
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    Cited by:

    1. John Creedy & Catherine Sleeman, 2006. "Indirect Taxation and Progressivity: Revenue and Welfare Changes," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(1), pages 50-67, March.
    2. Dorothee Boccanfuso & Antonio Estache & Luc Savard, 2011. "The Intra-country Distributional Impact of Policies to Fight Climate Change: A Survey," Journal of Development Studies, Taylor & Francis Journals, vol. 47(1), pages 97-117.
    3. 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.
    4. Peter Grösche & Carsten Schröder, 2014. "On the redistributive effects of Germany’s feed-in tariff," Empirical Economics, Springer, vol. 46(4), pages 1339-1383, June.
    5. Mahinda Siriwardana & Sam Meng & Judith McNeill, 2017. "Border adjustments under unilateral carbon pricing: the case of Australian carbon tax," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 6(1), pages 1-21, December.
    6. Parry, Ian W.H. & Sigman, Hilary & Walls, Margaret & Williams, Roberton C., III, 2005. "The Incidence of Pollution Control Policies," Discussion Papers 10651, Resources for the Future.
    7. Claudia Kettner-Marx & Daniela Kletzan-Slamanig, 2018. "Carbon Taxes from an Economic Perspective," WIFO Working Papers 554, WIFO.
    8. Bente Halvorsen, 2009. "Conflicting Interests in Environmental Policy-making?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(2), pages 287-305, October.
    9. Creedy, John & Sleeman, Catherine, 2006. "Carbon taxation, prices and welfare in New Zealand," Ecological Economics, Elsevier, vol. 57(3), pages 333-345, May.
    10. Sam Meng & Mahinda Siriwardana & Judith McNeill, 2014. "The Impact of the Australian Carbon Tax on Industries and Households," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 8(1), pages 15-37, February.
    11. Ian Parry, 2015. "Carbon Tax Burdens on Low-Income Households: A Reason for Delaying Climate Policy?," CESifo Working Paper Series 5482, CESifo.
    12. Sam Meng & Mahinda Siriwardana & Judith McNeill, 2013. "The Environmental and Economic Impact of the Carbon Tax in Australia," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(3), pages 313-332, March.
    13. Cristina Mohora & Ali Bayar & Masudi Opese & Frédéric Dramais, 2007. "Regional Effects of Carbon Taxes in Belgium," Energy and Environmental Modeling 2007 24000041, EcoMod.
    14. Araar, Abdelkrim & Dissou, Yazid & Duclos, Jean-Yves, 2011. "Household incidence of pollution control policies: A robust welfare analysis using general equilibrium effects," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 227-243, March.
    15. Siriwardana, Mahinda & Meng, Sam & McNeill, Judith, 2013. "Border Adjustments under Unilateral Carbon Pricing: Are they Warranted in the Case of Australian Carbon Tax?," Conference papers 332357, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    16. Meng, Sam & Siriwardana, Mahinda & McNeill, Judith & Nelson, Tim, 2018. "The impact of an ETS on the Australian energy sector: An integrated CGE and electricity modelling approach," Energy Economics, Elsevier, vol. 69(C), pages 213-224.
    17. Winter, Simon & Schlesewsky, Lisa, 2019. "The German feed-in tariff revisited - an empirical investigation on its distributional effects," Energy Policy, Elsevier, vol. 132(C), pages 344-356.
    18. Corbett A. Grainger & Charles D. Kolstad, 2010. "Distribution and Climate Change Policies," Chapters, in: Emilio Cerdá Tena & Xavier Labandeira (ed.), Climate Change Policies, chapter 7, Edward Elgar Publishing.
    19. Dorothée Boccanfuso & Antonio Estache & Luc Savard, 2008. "Distributional impact of global warming environmental policies: A survey," Cahiers de recherche 08-14, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.

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