I
National Tax Journal
Vol. 46, no. 2, (June, 1993), pp. 197-205
EVALUATING
FUEL TAX
EQUITY: DIRECT AND
INDIRECT
DISTRIBUTIONAL
EFFECTS
STEPHEN D. CASLER* & AISHA
RAFIQUI*
A recent proposal by the Clinton administration calls for a general tax on all energy
products. Along with raising revenue, such
a tax has the desirable effects of conserving finite resources, reducing pollution
emissions, and reducing dependency on
foreign supplies of energy. In addition, the
tax is consumption based. However, energy
taxes can have important distributional impacts, depending on which fuels are taxed
and how taxes are imposed. This study examines these impacts in a general equilibrium framework.’
Most studies of the distributional effects of
energy price increases are partial equilibrium in nature. Attention focuses on a particular fuel or fuel aggregate, and effects
on other commodities are ignored. Examples are seen in the work of Zupnick
(1975), Palmer et al. (1976), Stucker
(1977), Henderson (1988), and Poterba
(1991), who find that gasoline and other
energy taxes place disproportionate
burdens on low income and nonwhite consumers.’
Partial equilibrium studies are incapable of
capturing the entire range of relationships
Allegheny
College, MeadwIle,
PA 16335
197
among sectors of the economy. This fact is
recognized in Solow’s (1985) energy-based
general equilibrium study.3 Solow states
that energy taxes are likely to distort input
choices and cause changes in the composition of output4 However, the ability of Solow’s model to measure such effects is restricted. The economy is composed of
three sectors, Including a single fuel aggregate, and it is assumed that the capital
stock and labor force are fixed. Solow’s
study illustrates how data constraints impose a trade-off between the number of
sectors that can be included and the degree of flexibility attainable in estimating
parameter values. Among general equilibrium approaches, this fact explains why the
input-output
(I-O) model is used to measure highly disaggregated effects. Under
the fixed-proportions
assumption, direct
and indirect sectoral relationships are captured by the Leontief inverse. Bahl and
Shellhammer (1969) discuss the range of
uses for the I-O model to evaluate tax incidence and other tax effects5
Applications that examine the relationship
between energy consumption and income
are seen in work by Herendeen (1974) and
Hannon (1975). They each find that ac-
National Tax Journal
Vol. 46, no. 2, (June, 1993), pp. 197-205
counting for both direct and indirect energy consumption results in a more uniform proportion of expenditure on energy
across income levels.” When all effects are
included, a tax on energy is more likely to
be proportional than regressive.
the taxed fuel is gaso~line, the price change
is the product of the tax rate, t, and the
coefficient -ys,, which imeasures commodity
j’s direct and indirect gasoline requirement
per dollar of output:’
This study also uses the I-O approach. To
inform the current debate surrounding energy taxation, distributional effects are
measured using the most recent and disaggregated energy and dollar flows among
producing sectors. We thereby incorporate
the effects on industrial energy requirements and consumer expenditure of the
two oil price shocks of the 1970s and the
major decline In oil prices in the 1980s. By
measuring the potential regressivity of
taxes placed on gasoline, coal, refined petroleum products besides gasoltne, electricity, and natural gas, the list of fuels found
in past :studies is expanded. To evaluate effects across political constttuencies, a broad
range of consumer classifications is considered: relative burdens are examined for income quintiles, age categories, and rural
and urban areas.
0
THE FUEL TAX AND REGRESSIVITY:
DIRECT AND INDIRECT EFFECTS
Suppose that a gasoline or other fuel tax is
imposed on the fuel producer.7 The tax is
assumecl not to affect the relative amounts
of physical outputs purchased by consurners; real consumption shares are fixed.
Consistent with I-O assumptions, ratios of
input use per dollar of output are constant
for all industries. With fixed I-O coefficients
and consumption shares, demand elasticities are zero for all producers and consumers in the economy. A fuel tax is fully
shifted forward to consumers.* Shifting occurs directly, as fuel producers raise their
prices to account for the tax, and indirectly, as all producers raise their prices to
cover the increased cost of fuels and other
inputs. In the end, each product’s price
rises in proportion to its direct and indirect
use of the taxed fuel. For commodity j, if
Ap, = trg,
Assuming consumption of the original market basket, with commodity prices initially
normalized to one, the increase in expenditure for commodity j equals AP,C,. The total increase in expenditure caused by a
gasoline tax equals the value of direct and
indirect gasoline required to satisfy consumer expenditure on all products, X,,
weighted by the gasoline tax rate:
i Ap,C, = t 2 y&
I=1
,=1
=: tX,
To measure regressivity, total consumption
is decomposed into expenditures by higher
income groups (rich), CR, and lower income groups (poor), C”. The term $ measures total direct and indirect gasoline consumption by the rich, while g measures
this consumption by the poor. Using the
current market basket, a tax is regressive if
the ratio of direct and indirect gasoline
consumption to total expenditure for the
poor exceeds this ratio for the rich.” The
tax is regressive when
Alternatively, the tax is regressive If the ratio of poor to rich direc:t and indirect gasoline shares is greater than one. Because it
cancels, the tax rate is Iunimportant in determining regressivity.”
198
I
National Tax Journal
Vol. 46, no. 2, (June, 1993), pp. 197-205
FUELTAX EQUITY
THE DATA BASE
The fuels we consider are gasoline, coal,
refined petroleum products besides gasoline, electricity, and natural gas. Dollarbased I-O data are from the Bureau of
Economic Analysis (BEA) (1990). To account for specific energy products and energy intensive commodities, the 79 order
BEA aggregation is expanded to 89 commodities.” The latest detailed energy flows
are for 1985, from the National Energy Accounts (NEA). The energy-based model described by Miller and Blair (1985) and Casler and Hannon (1989) is used.13
Consumption expenditures for 1985 are
from the Consumer Expenditure Survey
(CES) (1989) and show spending on commodities by income and other classificati0ns.14 In forming expenditure vectors, a
computer printout of detailed survey data
ensured the closest possible match between BEA and CES product categories.”
DISTRIBUTIONAL
EFFECTS ACROSS IN-
COME QUINTILES
The top portion of Table 1 shows direct
expenditure shares for fuels by income category. The first column shows average
shares for all consumers. Shares by income
quintiles appear in the other columns.
Spending on gasoline constitutes the largest share across income groups, followed
by electricity, natural gas, other refined petroleum products, and coal. Spending on
all fuels comprises approximately 10 percent of average household expenditures.
The number in parentheses below each
share is the ratio of the share to the corresponding share from the highest income
quintile. A ratio greater than one implies
that the lower quintile allocates a higher
proportion of its expenditure directly to the
fuel considered. Because all lower quintile
ratios exceed one, an ad valorem or per
unit tax on any fuel is regressive.
Expenditure shares for direct and indirect
energy consumption appear in the bottom
199
portion of Table 1. Shares divided by the
highest income quintile’s direct and indirect shares are in single parentheses. In
double parentheses are the ratios of direct
energy consumption to direct plus indirect
energy consumption. Except for refined petroleum products used by the lowest three
quintiles, all direct and indirect share ratios
are greater than one; fuel taxes are generally regressive even after accounting for indirect effects. However, there is far less
variation compared with the direct expenditure data; all of the share ratios have
moved significantly toward one. When
both direct and indirect effects are considered, fuel taxes are much more neutral.
Relative to the highest quintile, direct and
indirect expenditure shares decline steadily
for coal, electricity, and natural gas; the
first quintile bears the highest direct and
indirect burden for these fuels. For gasoline
and refined petroleum products, shares rise
until the last qurntile. The amount by
which relative shares exceed one for the
lowest two quintiles shows that a tax on
natural gas is most regressive. Among
fuels, the ratio of direct to direct plus indirect gasoline consumption is the largest
across all quintiles. Accounting for Indirect
effects does the least to reduce the regressivity Implied by the direct burden of a
gasoline tax.
The final row in Table 1, “Total Btu per
dollar of expenditure,”
shows total direct
and indirect energy consumption in British
thermal units (Btus) per dollar of expenditure.16 It is used to assess the burden of a
uniform tax on all primary energy products.17 This burden rises between the frrst
two quintiles and declines for the last
three. Relative to the highest quintile, the
lowest would pay 7.7 percent more tax per
dollar of expenditure. This compares with
35.3 percent more when only direct energy
purchases are taxed. For the lowest income
quintiles, share ratios for total direct and
indirect energy are smaller than ratios for
most individual fuels. In terms of distribu-
National Tax Journal
Vol. 46, no. 2, (June, 1993), pp. 197-205
TABLE 1
1985 ENERGY EXPENDITURE SHARES
BY INCOME CATEGORIESa
--
---
Gasoline
Coal
Refined petroleum
Electricity
Natural
4.581
(1.175)
0.009
(3.528)
0.450
(1.161)
2.980
(1.190)
1.493
(1.332)
9.512
(1.202)
Second
Third
-- Fourth
Quintile
Quintile
Quintile
.-----Y-P._
Direct Expenditure Shares
4.466
4.968
5.082
5.093
(1.145)
(1.274)
(1.303)
(1.306)
0.008
0.020
0.026
0.012
(3.332)
(7.676)
(10.052)
(4.658)
0.492
0.574
0.430
0.447
(1.271)
(1.481)
(1.154)
(1.111)
3.694
3.491
3.141
2.952
(1.475)
(1.394)
(1.254)
(1.179)
2.047
1.935
1.660
1.422
(1.827)
(1.726)
(1.481)
(1.269)
10.709
10.987
10.340
9.926
(1.353)l
(1.388)
(1.306)
(1.254)
5.464
(1.137)
Direct and Indirect
5.327
5.823
(1.108)1
(1.211)
Average
_----pm-
gas
Total
Gasoline
Lowest
Quintile
((0.838)) W33-9)
0.894
(1.067)
W.010))
9.321
(0.990)
Coal
Refined petroleum
((0.048))
6.363
(1.076)
Electricity
((0.468))
Natural
gas
Total 8tu per
dollar of expenditure
3.547
(1.132)
((0.421))
31919
(1.058)
W.290))
0.956
(1.142)
((0.009)l)
8.687
(0.92211
((0.057))
7.004
(1.185)
((0.527))
4.114
(1.313)
((0.498)l)
32483
(1.077)
((0.321))
((0.853)
0.950
(1.134)
((0.021))
9.219
(0.979)
((0.062))
6.806
(1.151)
((0.513))
4.013
(1.281)
((0.482))
33432
(1.108)
(U-25))
a Numbers in parentheses
represent expenditure
shares divided by expenditure
Numbers in double parentheses
represent the ratio of dilrect energy to direct
effects, total direct and indirect energy consumption is a good candidate for
taxation.18
tional
DISTRIBUTIONAL
EFFECTS BY LOCATION
Direct energy expenlditure shares for urban
and rural consumers. appear in the top portion of Table 2. Numbers in parentheses
are expenditure shares relative to shares
for rural consumers. Direct expenditure
shares for rural consumers exceed those
for urban consumers for gasoline, coal,
other refined petroleum products, and
electricity; taxing these fuels places a larger
relative burden on rural residents. How-
Expenditure
5.953
(1.238)
(WW)
0.931
(1.111)
((0.028))
9.352
(0.993)
((0.046))
6.524
(1.104)
((0.481
)I
3.743
(1.195)
((0.444))
33081
(1.097)
((0.309))
Shares
5.977
(1.244)
Highest
Quintile
3.899
(1.000)
0.003
(1 .OOO)
0.387
(1.000)
2.504
(1.000)
1.121
(1 .OOO)
7.914
(1 .OOO)
4.807
(1 .OOO)
WJ.852)) W311))
0.902
(1.077)
((0.013))
9.485
(1.007)
((0.047))
6.377
(1.079)
0.837
(1.000)
((0.003))
9.418
(1 .OOO)
((0.041))
5.912
(1.000)
((0.463)) ((0.424))
3.503
(1.118)
3.133
(1.000)
UO.406)) (O-9)
32660
(1.083)
((0.296))
30164
(1.000)
((0.252))
shares of the highest income quintile.
plus indirect energy for the fuel shown.
ever, examining direct and indirect effects
in the bottom of the table, ratios of urban
to rural direct and indirect expen,diture
shares are much closer to one; when all
effects are considered, a tax applied to any
fuel becomes more n-reutral. Gasoline is
least affected when indirect consumption
is included, and a gasoline tax has the
greatest negative dlstributional impact
in rural areas. From the “Total Ktu per
dollar of expenditure”
row, urban
households consume 87.2 percent of
the energy consumed by rural households
per dollar of expenditure. This compares
with 76.9 percent fol? direct energy
alone.
I
National Tax Journal
Vol. 46, no. 2, (June, 1993), pp. 197-205
FUELTAX EQUITY
TABLE 2
1985 ENERGY EXPENDITURE SHARES
BY AREAa
Urban
Direct Expenditure
Gasoline
Coal
Refined petroleum
Electricity
Natural
gas
Total
Direct and indirect
Gasoline
Coal
Refined
petroleum
Electricity
Natural
gas
Total Btu per
dollar of expenditure
Shares
4.348
(0.731)
0.009
(0.277)
0.427
(0.645)
2.828
(0.691)
1.565
(1.306)
9.176
(0.769)
Expenditure
5.233
(0.769)
Rural
5.950
(1 .OOO)
0.032
(1 .OOO)
0.662
(1 .OOO)
4.092
(1.000)
1.198
(1.000)
11.934
(1 .OOO)
Shares
6.809
(1 .OOO)
((0.831)I
((0.874)
0.866
(0.796)
((0.010))
9.120
(0.908)
((0.047))
6.165
(0.803)
((0.459))
3.578
(1.035)
((0.437))
31218
(0.872)
((0.289))
1.088
(1 .OOO)
((0.029))
10.045
(1 .OOO)
((0.066))
7.674
(1.000)
((0.533))
3.458
(1.000)
((0.347))
35815
(1 .OOO)
((0.310))
a Numbers in parentheses
represent expenditure
shares
divided by rural expenditure
shares. Numbers in double
parentheses
represent the ratio of direct energy to direct plus indirect energy for the fuel shown.
DISTRIBUTIONAL
EFFECTS ACROSS AGE
CATEGORIES
The top portion of Table 3 shows direct
energy expenditure shares by age group. In
parentheses are the shares for each age
category divided by shares for the oldest
group of consumers. Direct burdens tend
to rise with age for refined products, electricity, and natural gas. Gasoline shares fall
dramatically for those over 65. For individual fuels, greater neutrality again results
when direct and indirect effects are accounted for. Those older than 65 face the
lowest direct and indirect burden from a
201
gasoline tax; the burden is heaviest on the
youngest age category. For other age
groups, the burden of a gasoline tax is
fairly uniform. With a tax on each Btu of
direct and indirect energy, the youngest
group of Americans would pay 2.7 percent
more than the amount paid by the oldest
group for each dollar of expenditure.
A TAX ON INDIRECT FUEL CONSUMPTION
Results in Tables l-3 show that accounting for both direct and indirect energy use
is not sufficient to achieve complete neutrality or progressivity. However, the consistent manner in which indirect effects lead
to more proportional energy consumption
per dollar of expenditure suggests an alternative strategy-taxation
of indirect energy
use alone. By exempting direct energy purchases from taxation, the most regressive
component is removed. Producers using
fuels as inputs will pay the tax, which is
fully shifted to consumers. With direct consumer purchases of energy exempted, the
prices of nonenergy products are mostly
affected.lg
Measures of tax regressivity based on indirect energy consumption are shown in Table 4. Ratios of Indirect fuel consumption
shares to the indirect shares for the highest income category are shown on top; indirect ratios by region appear in the middle; the bottom of the table shows ratios
by age groups. To see changes in regressivity, these ratios can be compared with
those in single parentheses in Tables l-3.
Across quintiles, when only indirect energy
consumption is considered, a significant
movement toward neutrality occurs for
natural gas. Taxes on gasoline and electricity become progressive, and a tax on refined petroleum products becomes more
progressive than when both direct and indirect effects are considered. Because most
coal use is indirect, there is little change in
National Tax Journal
Vol. 46, no. 2, (June, 1993), pp. 197-205
_----.-_--d-T-
Gasoline
Coal
Refined petroleum
Electricity
Natural
gas
Total
Gasoline
Coal
Refined petroleum
Electricity
Natural
gas
Total Btu per
dollar of expenditure
a Numbers
--.--~
TABLE 3
1985 ENERGY EXPENDITURE SHARES
BY AGE GROUPSa
----em----~25
25-34
35-44
45-54
55-64
65-74
.----_____Direct Expenditure Shares
5.364
4.714
4.655
4.805
4.600
3.995
(1.631)
(1 ,662)
(1.856)
(1.611)
(1.592)
(1.382)
0.000
0.014
0.011
0 007
0.008
0.016
(0.000)
(0.981)
(0.769)
(0.484)
(0.578)
(1.081)
0.166
0.313
0.390
0 so9
0.536
0.642
(0.327)
(0.408)
(0.532)
(0.174)
(0.560)
(0.672)
2.182
2.763
3.082
3 01s
3.116
3.330
(0.647)
(0.819)
(0.913)
(0.894)
(0.923)
(0.987)
1.066
1.372
1.262
1427
1.773
1.859
(0.540)
(0.497)
(0.420)
(0 562)
(0.698)
(0.732)
8.777
9.176
9.400
9763
10.033
9.842
(0.939)
(0.898)
(0.962)
(0 999)
(1.026)
(1.007)
6.261
(1.674)
((0.857))
0.815
(0.904)
((0.000))
9.399
(1.120)
((0.018))
5.658
(0.864)
((0.386))
3.130
(0.691)
((0.340))
31441
(1.027)
((0.273))
5.596
(1.496)
((0.843))
0.879
(0.974)
((0.016))
9.563
(1.140)
((0.033))
6.160
(0.941)
((0.448))
3.431
(0.758)
((0.400))
32022
(1.046)
((0.279))
in parentheses
represent expenditure
hers in double parentheses
represent the ratio
Direct and Indirect Expenditure Shares
5.546
5.698
5.467
4.862
(1.483)
(1 523)
(1.462)
(1.300)
((0.839))
((0 843))
((0.841))
((0.822))
0.916
0 893
0.900
0.915
(1.015)
(0 989)
(0.997)
(1.014)
((0.012))
((0.008))
((0.009))
((0.017))
9.378
9 309
9.140
8.752
(1.118)
(1 110)
(1.089)
(1.043)
((0.042))
((0 055))
((0.059))
((0.073))
6.510
6405
6.447
6.579
(0.994)
(0 978)
(0.985)
(1.005)
((0.473))
((0 471))
((0.483))
((0.506))
3.329
3474
3.820
3.860
(0.736)
(0 767)
(0.844)
(0.853)
((0.379))
((0 411))
((0.464))
((0.482))
31910
32038
32200
31249
(1.043)
(1 047)
(1.052)
(1.021)
((0.280))
((0.295))
((0.308))
((0.311))
.-~--~
.-
shares divided
of direct energy
regresrivity. A uniform tax on all energy
products is slightly progressive for the lowest inc:ome quintile and vrrtually neutral for
all other quintiles. For regional categories,
an improved pattern of neutrality occurs
for all fuels except natural gas. For age
categories, the effects of a tax on indirect
energy consumption result in greater neutrality for gasoline aind natural gas. Declines in indirect consumption of electricity
and refined petroleum products over the
life cycle leacl to relatively lower burdens
for the oldest group of Americans.
Conclusions
Our findings show the lrkely degree of vertical inequity after imposition of an energy
tax. Our study also provides information
:>74
2.890
(1 .OOO)
0.014
(1.000)
0.956
(1.000)
3.374
(1.000)
2.539
(1.000)
9.775
(1 .OOO)
3.741
(1 .OOO)
((0.773))
0.902
(1.000)
((0.016))
8.389
(1.000)
((0.114))
6.547
(1.000)
((0.515))
4.526
(1 .OOO)
((0.561))
30603
(1.000)
((0.331))
by expenditure
shares for the oldest age group. Numto direct plus indirect energy for the fuel shown
for analyzing the distributional effects of
energy price changes from sources such as
011price shocks, changes in natural gas
regulation, or discoveries of alternative energy supplies Finally, two distinct outcomes energe regarding fuel tax regressivity, depending on whether exemptions are
allowed for direct energy purch<+ses.
Without exemptions, patterns of regressivity for direct and indlrect energy expenditure resemble those for direct energy.
Thus, if Interest is focused upon the hierarchy of iax burdens and not the exact levels of burdens, direct effects provide this
information. However, taxes on fuels are
far less regressive than direct expenditure
data indicate. Accounting for both direct
I
National Tax Journal
Vol. 46, no. 2, (June, 1993), pp. 197-205
FUELTM EQUITY
TABLE 4
INDIRECT ENERGY EXPENDITUREa
RATIOS
Gasoline
Coal
Refined petroleum
Electricity
Natural gas
Total
Average
Lowest
Quintile
0.974
1.060
0.982
0.993
1.021
1.004
0.949
1.135
0.907
0.971
1.027
0.976
Third
Quintile
Fourth
Quintile
Highest
Quintile
Income Categories
0.942
0.959
1.114
1.084
0.957
0.988
0.973
0.993
1.033
1.035
1 .ooo
1.013
0.975
1.066
1.001
1.005
1.034
1.018
1 .ooo
1 .ooo
1 .ooo
1 .ooo
1 .ooo
1 .ooo
Area Categories
Urban
Rural
1.030
1.ooo
0.812
1 .ooo
0.926
1 .ooo
0.932
1 .ooo
0.891
1 .ooo
0.897
1 .ooo
Gasoline
Coal
Refined petroleum
Electricity
Natural gas
Total
Gasoline
Coal
Refined petroleum
Electricity
Natural gas
Total
Second
Quintile
<25
1.055
0.918
1.242
1.096
1.039
1.116
25-34
1.037
0.974
1.245
1.071
35-44
1.047
1.019
1.209
1.080
1.040
1.122
1.036
1.127
Age Categories
45-54
1.051
0.998
1.184
1.068
1.030
1.102
55-64
1.020
1.004
1.158
1.050
1.030
1.088
65-74
1.019
1.013
1.091
1.024
1.007
1.052
>74
1.ooo
1 .oOO
1 .ooo
1 .ooo
1 .ooo
1 .ooo
aFor income categories, values represent the ratio of indirect fuel expenditure
shares relative to the highest income
group. Urban and rural values are the ratio of indirect expenditure
shares relative to rural shares. For age categories,
ratios are indirect expenditure
shares relative to shares for the oldest age category.
and indirect effects reduces the energy tax
burden from 20.2 to 5.8 percent, on average.2o
Although greater neutrality results for individual fuels when direct and indirect effects are considered, a tax on any single
fuel can reduce horizontal equity.2’ This is
the advantage of taxing all fuels, as in the
Clinton proposal.22 In addition to a general
Btu tax, policymakers are likely to continue
targeting gasoline for additional taxation;
it is the fuel of choice for private transport
across all income categories. Even though
indirect use of this fuel is the smallest and
rural and lower income consumers are adversely affected, the overall equity concerns
and the potential public reaction to a tax
on gasoline are far less than those likely to
arise from a tax on any other specific energy product considered here.
From an equity standpoint,
a much better
203
alternative is a tax that exempts all direct
energy purchases by consumers. Such a tax
is neutral or progressive for all fuels except
coal and natural gas. Compared with the
average regressivity of a Btu tax on total
direct and Indirect energy consumption,
the relative burden falls from 5.8 to 0.4
percent. Such a tax is progressive for the
lowest income quintile and virtually neutral
for the others. Exempting direct consumer
expenditure still subjects the preponderance of economy-wide energy use to taxation: fuel use by the industrial sector accounts for approximately 32 percent of all
gasoline, 99 percent of all coal, 89 percent
of other refined petroleum products, 64
percent of all electricity, and 69 percent of
all natural gas.23 By exempting direct energy expenditures for consumers, taxes on
specific fuels are possible without obvious
implications for horizontal equity. Finally,
consumers might be much less inclined to
National Tax Journal
Vol. 46, no. 2, (June, 1993), pp. 197-205
data are required to capture drstrnctrons
oppose an energy i:ax that does not apply
directly to them.
coefflclrl Its vary greatly for transport
expendtture
shares for these forms of publrc tansport
fer acres
ENDNOTES
wade range of r’;sues Involved
the regulatron
in
sented
tron of energy production
and are not pre-
f Ior Iexample, the drrect and IndIrect cost share fat
refined pt:troleum
’ Bowman and Mtkesell (1983) and Shmanske (1990) inves
tlgate the facts-s that underlle determnatlon
the sums of drrect and indr-
rect fuel ,hares are not meanmgful
and taxa-
drf-
income groups
‘I’ Because of double countrng,
’ See National la< Assocratlon (1978) for tliscusslon of the
duel Inverse
by bus, rarl, and arr,
Includes the refined petroleum
used to
produce 4ec tncity. The measure “Total BtJ per dollar of
of state gas,
expendr:t re”
calculated
IS
to avoid double countrng
See
Ca4er and Hannon (1989)
oline tax rates
3 See tiarberger’s
(1962) ~,emln~rl article orI tax Incidence In
a general equtlrbnum
setting
(1989) general equlltbnum
approach
model that Inrluder, aggregate
4 These drstortlons
’ ’ Primary c’nergy products
Goulder and Summers’
Include coal, truce petroleum,
natural g 35, and hydro and nuclear power
uses ,3 five sector
often transformed
energy
These fuels are
or used as Inputs to produce other
fuels before flnal use For example, crude petroleum
transformed
and cl-anges are dIscussed by Sweeney
Into refined petroleum
is
products and coal
IS
mostly u,ed to produce elecirtcrty
(1984)
* Bhatra (1988) u‘,es a hrghly aggregated
“’ A wellhe,ld
I 0 model with
tax on crude petroleum
mine-mouth
flexitlle coefflc ents
6 Indirect energy consumption
cause mcst energy products
rcfcsrs to the energy It takes
to produce energy and *ionen?rgy
’ To treat Imports and exports
I-
an equtbalent
because of nuclear,
hydro, and other nonfosstl fuel-based
manner and
compclrtlveness
of
U 5 firms. the tax can be applied to the fuel content
Imports and crlrl be reb&ed
come from these sources
Electricity requires special treatment
products
to avoid reducrng the Iniernatronal
and natural gas and a
tax on coal vvould accomplrst- this goal, be-
of
sources of genera-
tion
”
For concumer5, fuel prrces will rise somewhat
lndrrect c=iergy used to produce fuels
for exports
because the
be subject to
will
taxation
’ It IS also assumEd that trle tax has no eflect on wages
and other facto!, prices, /because the drstrtbutron
‘( In rneasu InSI the energy content of rmpor:s and exports,
of In-
accounting
come could be altered
’ Equation
1
from the \,-llue-b<lsed Leonttef prlcc’ model
IS
Product prices inrttally equal ore
all taxes
See Miller and Blair
econornrc Income to determine
efiects are considered
(199 I) 13ecause of transitory
a more reliable Teasure
SISfor determlnlng
I1 DetermInIng
it
IS
a more consistent
ba
long-run
regressrvlty Involve\ estrmattng depaths, a dnfflcult task given
BEA’!, refined petroleum
because it
aggrecjate
IS
part of
However, gasolrne
011
would
Resrdents 0”
Clinton’~, proposal exempts some fuel types, such as solar
’
energy
Because so I ttle gasoline IS consumed
sector,
it5
by the rndustnal
pcltential for raising revenue, conserving
sauces, .aird decreasrng pollutron emrssrons
However
the dynamics :)f change
I2 Gasoline poses a specral problem,
products
heatrng with
would face a bllgher burden than residents
and geothermal
data constrarnts and the absence of models capable of
captunng
“
relattve tax burdens
tarlecl future consurnptlon
their en-
of the mdwest
of long run well being than cur-
Therefore,
Taring Imports for
and leaves L S goods less tclmpetrtrve
the north-ast
lrkely to provide
To keep
alone undenalues
severely Flen,sllze households
Irlcome, Porerba (1991, p
IS
essential
I1 For examtIle, a tax on refined petroleum
by Wallace et a/
156) observes that current exp+ndrture
rent <annual Income
paycd directly or IndIrectly
ergy corltlnt
Problems In estlvatlng
dlstrrbutlonal
IS
abroad require<, a tax rebate of
their drrel t fuel requirements
(1985, pp 354 561
”
for Indirect energy use
U S products competitive
there
IS
IS
re-
reduced
plenty of r3om for achlevrng these ob-
jectives II\) t;lxlng other fuels
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“Evaluating
of Input-
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203- 16
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