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ID:
187610
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| Summary/Abstract |
This paper investigates the trade-offs between progressivity and effectiveness for a carbon tax versus an ‘excessive consumption’ levy. To do this, we compare the distribution of consumer welfare impacts and environmental effectiveness of an air travel carbon tax and a frequent flyer levy. Results show that both policies have the potential to achieve substantial carbon mitigation with minimal impacts on consumer welfare. Nevertheless, compared with a carbon tax, a frequent flyer levy is more progressive and effective at reducing emissions – thus, there is no trade-off between progressivity and effectiveness by using an excessive consumption levy to mitigate air travel emissions. Furthermore, considering the pronounced growth in demand projected for air travel over the next 30 years, results show the frequent flyer levy will remain more progressive and effective over time. Although further research is needed to assess the trade-offs on the supply-side (e.g., protection of regular customers, dynamic efficiency) and related to implementation (e.g., data privacy, the role for revenue recycling), such an excessive consumption levy has the potential to be an equitable, effective and politically acceptable environmental policy for curbing carbon dioxide emissions. This is relevant not only for air travel but for other forms of consumption in which the affluent are responsible for a large share of demand and associated carbon emissions.
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| 2 |
ID:
171391
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| Summary/Abstract |
Electricity subsidies in developing countries have always been debated in economics circles. Despite their popular appeal of providing relief to the poor, the research has proven otherwise. They increase the magnitude of deadweight loss and taper consumer welfare. However, complete withdrawal of a subsidy will make electricity unaffordable for the underprivileged. Therefore, in the context of developing countries, there is a need to determine the optimal level of subsidy, which will have the least economic impact and benefit the maximum number of users. Pakistan has been marred by deep energy crises and the government is forced to provide very large subsidies for electricity. Using Pakistan as a case study, this study uses a uniform and non-uniform price increase to determine the optimal level of electricity subsidies. This study employs a micro-model technique for the calculation of deadweight and welfare losses when the price of electricity is increased uniformly or non-uniformly across different consumption groups. This study also introduces a targeted subsidy approach for curbing the mounting deadweight loss due to immense electricity subsidies. Our research has identified that the targeted subsidy approach not only generates fiscal savings but also improves the welfare of the vulnerable in society.
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