The heterogeneous incidence of fuel carbon taxes: Evidence from station-level data

We use station-level price data and a significant diesel fuel carbon tax reform to study who bears the economic burden of fuel carbon taxes. We use a difference-in-differences strategy to estimate the pass-through of the large carbon tax increase to retail prices, where we compare retail diesel pric...

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Bibliographic Details
Published in:Journal of environmental economics and management 2022-03, Vol.112, p.102607, Article 102607
Main Authors: Harju, Jarkko, Kosonen, Tuomas, Laukkanen, Marita, Palanne, Kimmo
Format: Article
Language:English
Subjects:
Carbon pricing
Carbon tax
Distributional effects
Fuel tax
Tax incidence
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Summary:We use station-level price data and a significant diesel fuel carbon tax reform to study who bears the economic burden of fuel carbon taxes. We use a difference-in-differences strategy to estimate the pass-through of the large carbon tax increase to retail prices, where we compare retail diesel prices faced by private motorists to retail gasoline prices. We find that on average fuel carbon taxes are less than fully passed through to consumer prices, which suggests that consumers and the supply chain split the burden of these taxes. Using information on station location, we match price observations with postcode-level average incomes and measures of urbanization, and show that there are significant differences in the pass-through rate across areal incomes and between rural and urban areas up to one year after the reform. The effect of fuel carbon taxes on consumer prices decreases with areal income and with the degree of urbanization.
ISSN:0095-0696
1096-0449
DOI:10.1016/j.jeem.2021.102607