Program > Papers by author > Verde Stefano

Tuesday 13
C4 - Environment IV
Chair: Jean-Marc Bourgeon
› 9:25 - 9:50 (25min)
› Room 005 - E. Jaques-Dalcroze
The signaling effect of gasoline taxes and its distributional implications
Silvia Tiezzi  1@  , Stefano Verde  2@  
1 : Department of Economics and Statistics - University of Siena (I)  (DEPS - UNISI)  -  Website
Università degli Studi di Siena Rettorato, Via Banchi di Sotto 55, 53100 Siena -  Italy
2 : Florence School of Regulation - Climate  (European University Institute)  -  Website

This paper proposes and tests a better defined interpretation of the different responses of gasoline demand to tax changes and to market-related price changes. Namely, the signaling effect of gasoline taxes is one that impacts on long-run consumer decisions in addition to the incentives provided by tax-inclusive gasoline prices. Our hypothesis is tested using a complete demand system augmented with information on gasoline taxes and fitted to household-level data from the 2006 to 2013 rounds of the US Consumer Expenditure survey. Information on gasoline taxes is found to be a significant determinant of household demand additional to tax-inclusive gasoline prices. The equity implications are examined by contrasting the incidence across income distribution of a simulated $0.22/gallon tax increase to that of a market-related price increase equal in size. The tax increase is clearly regressive, slightly more than the market-related price increase. However, regressivity is by no means a reason to give up gasoline taxes as an instrument for reducing gasoline consumption externalities. Their high effectiveness in reducing gasoline demand implies that small tax increases can substantially improve the environment while minimizing the related distributional effects. Also, gasoline taxes generate revenue that can be used to offset their regressivity.

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