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Are CO2 taxes regressive? Evidence from the Danish experience

Description

Denmark today carries one of the heaviest environmental tax burdens in the world, bringing in around 10% of public revenues. While evaluations have shown that the Danish CO2 and other environmental taxes work as an effective measure to reduce emissions, a considerable barrier to increased use of these instruments today seems to be a widespread perception of their socially adverse effects. In this article, it is demonstrated that CO2 taxes imposed on energy consumption in households, as well as in industry, do in fact tend to be regressive, and therefore have undesirable distributional effects. This holds especially for taxes imposed directly on households. To analyze this, we apply national consumer survey statistics in combination with input–output tables.