EVALUATING FUEL TAX EQUITY: DIRECT AND INDIRECT DISTRIBUTIONAL EFFECTS

Energy taxes can have important distributional impacts, depending on which fuels are taxed and how taxes are imposed. In a study, these impacts are examined in a general equilibrium. 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. The findings show the likely degree of vertical inequity after imposition of an energy tax. Information is also provided for analyzing the distributional effects of energy price changes from sources such as oil price shocks, changes in natural gas regulation, or discoveries of alternative energy supplies. Distinct outcomes emerge regarding fuel tax regressivity, depending on whether exemptions are allowed for direct energy purchases.