ETHANOL POLICIES AND WELFARE UNDER THE PRE-EXISTING FUEL AND LABOUR TAXES

• Authors: Cooper Kristen B. , Drabik Dušan
• Languages of publication: EN

Abstracts

EN

We develop a tractable general equilibrium model to analyse the welfare implications of a biofuel blend mandate and consumption subsidy in the presence of pre-existing labour and fuel taxes. We find empirically that the tax interaction and revenue recycling effects are significant relative to the overall costs of the policies and previous partial equilibrium studies. We find that removing the tax credit used in combination with a binding mandate – which mirrors the expiration of the U.S. blender’s tax credit at the end of 2011 – yields a net welfare gain of only USD 9 million; this is significantly less than the welfare gain of USD 357 million attributable to fiscal interaction effects. This interesting result is due to the binding nature of the mandate. We find that the welfare cost of the blend mandate alone is USD 8.3 billion, which includes a tax interaction effect of USD 1.54 billion. We also find empirically that the tax credit is welfare superior to the mandate for a given level of ethanol consumption because the fuel tax is above the external costs of greenhouse gas emissions. This result is robust to the presence or absence of the labour tax.

Keywords

EN

BIOFUEL POLICIES; BLEND MANDATE; TAX CREDIT; GASOLINE TAX; GREENHOUSE GAS EMISSIONS; RENEWABLE FUEL STANDARD; LABOUR TAXES

• Publisher: Institute of Slovak and World Economics and Institute for Forecasting, Slovak Academy of Sciences
• Journal: Ekonomický časopis (Journal of Economics)
• Year: 2019
• Volume: 67
• Issue: 8
• Pages: 791 – 810

Contributors

author

Cooper Kristen B.

• Gordon College, Department of Economics and Business, 255 Grapevine Road, Wenham, MA 01984, United States

author

Drabik Dušan