The public defence of Helen Poltimäe's PhD thesis "The distributional and behavioural effects of Estonian environmental taxes" will take place on 4th June 2014 at 14.15 in room B306, Narva Rd 4, Tartu.
Professor Tiiu Paas, University of Tartu
Professor Henrik Klinge Jacobsen, Technical University of Denmark
Dr Anil Markandya, Basque Centre for Climate Change
Dr Sirje-Ilona Pädam, Tallinn University of Technology
Environmental taxes are an interesting research object: on one hand, they are targeted at changing the consumption behaviour of households and enterprises. From a theoretical point of view, these are instruments to address externalities. A negative externality leads to a situation where private marginal costs and social marginal costs differ. On the other hand, environmental taxes belong to the instrument group of taxes that have distributional effects in a society. One of the properties of a good tax system is that it should be easy to administer and should not hinder the efficient allocation of resources.
There are several policy documents that stress the importance of a resource- and energy-efficient economy. One way of achieving it is ecological tax reform, which aim is to increase taxes on environmental 'bads' and decrease the tax load on employment. Hence, taking into account the potential of placing more emphasis on environmental taxation, the effects of these taxes deserve more attention. This thesis is aimed at finding out the distributional effects of environmental taxes and the possible interlinkages to their behavioural effects in the example of Estonia.
So far in the literature, research on environmental taxes has mainly been done for developed countries, where the income levels and tax systems are more or less stable. The novelty of the thesis comes from the two aspects: first of all, it is an ex post analysis of environmental taxes in the context of an economy that has experienced rapid changes, which has not received much attention in research so far. Secondly, it acknowledges the linkages between distributional and behavioural effects.
It was found that the direct distributional effect of environmental taxes in Estonia is progressive, as the main tax object is motor fuel. However, the fuel excise imposed on electricity is clearly regressive, but its magnitude is much smaller than the one of motor fuel.
The indirect distributional effect of Estonian environmental taxes is regressive, as the lower income deciles spend more on food and housing, which are energy-intensive. The overall pattern of direct and indirect distributional effect is still progressive. However, motor fuel excise has not led to a decrease in consumption. It seems that economic crisis and employment status have been the more important factors. The fuel excise on petrol is in line with good tax policy as it has been a good source for state budgets and can be classified as a fiscal environmental tax. However, what this principle does not account for is the existence of externalities. To sum up, in the example of Estonia the environmental taxes have not had negative effect on equity in the society, but also have not solved environmental problems they are targeted at.