Distributional effects of environmental taxation in Norway

Environmental taxation is a common approach for countries to reduce the emissions of greenhouse gases and shift from a fossil-based economy into a green sustainable economy. The aim of this thesis is to explore and analyse the distributional effects of environmental taxation in Norway and investigat...

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Bibliographic Details
Main Author: Kumlin, Calle Carl Hans Anders
Format: Dissertation
Language:English
Online Access:Request full text
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Summary:Environmental taxation is a common approach for countries to reduce the emissions of greenhouse gases and shift from a fossil-based economy into a green sustainable economy. The aim of this thesis is to explore and analyse the distributional effects of environmental taxation in Norway and investigate if environmental taxation contributes to economic inequality. The distributional effects of environmental taxation in Norway is examined with the simulation model LOTTE-Konsum, which is used by policymakers to estimate the distributional effects of changes in indirect taxation. LOTTE-Konsum calculates consumption expenditure for each household based on disposable income and demographics, and determines the budget shares for each household and creates households specific price indices. A dataset consisting of 2.576.693 households and 5.423.505 individuals is constructed, which represent the Norwegian population and the dataset is used to answer the research question. The distributional effects are found through changes in household specific price indices, which is identified by changes in commodity prices due to environmental taxation. The findings are analysed and presented through decile tables and inequality measurements. The main result of the thesis suggest that environmental taxation overall is regressive in Norway with regressive effects on electricity, gasoline, diesel and oils, liquid fuel, mineral water, soft drinks and beer, and progressive effects on vehicle purchase costs, air passenger costs and wine. The effect on inequality is measured by changes in the Gini coefficient, with a before and after analysis of the coefficient. A distinction is done for environmental taxes closely related to economic theory (Pigouvian taxes) and environmental related taxes which is used in international reporting. The Gini coefficient is decreased with about 0,9% to 0,11% when excluding environmental taxes and about 0,26% to 0,39% when excluding environmental related taxes. This implies that the introduction of environmental taxation has led to a higher Gini coefficient and increased inequality. The results also suggest that the regressive impact can be mitigated and in fact made to a progressive impact if the revenues from the taxes are recycled back to the households in population in lump-sum transfers. JEL classification : D3, H23, Q38, Q48.