Energy Taxes in Three Political Economy Models

Helmuth Cremer, Philippe De Donder, Firouz Gahvari

Research output: Contribution to journalArticlepeer-review

Abstract

What accounts for the existence of positive energy taxes in the US, given that such taxes are regressive and that the income distribution is skewed to the right? The traditional majority-voting equilibrium approach suggests a subsidy; thus we also look at two alternatives. These are the probabilistic-voting model and Roemer's (2001) model of political competition with the "Party Unanimity Nash Equilibrium" (PUNE) as the equilibrium solution concept. Our economic model is calibrated on the basis of the US data. The paper shows that while the majority-voting approach calls for a massive subsidy, the PUNE approach leads to huge environmental taxes. Our tentative results suggest that the probabilistic model, wherein parties assume that the proportion of unbiased voters is the same in all categories of income, comes closest to explaining the observed US energy taxes.
Original languageEnglish (US)
Pages (from-to)1-27
JournalB.E. Journal of Economic Analysis and Policy
Volume7
Issue number1
DOIs
StatePublished - 2007

Keywords

  • energy taxes
  • political competition
  • majority-voting
  • probabilistic voting
  • PUNE

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