Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273329 
Year of Publication: 
2023
Series/Report no.: 
DIW Discussion Papers No. 2041
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
This paper is the first to investigate the effectiveness of fuel taxation to jointly deliver climate and health benefits in a quasi-experimental setting. Using the synthetic control method, we compare carbon and air pollutant emissions of the actual and synthetic German transport sector following the 1999-2003 German eco tax reform. We demonstrate sizable average reductions in CO2 (12%), PM2.5 (10%) and NOX (6%) emissions between 1999 and 2009 across a range of specifications. Using official cost estimates, we find that the eco-tax saved more than 40 billion euros of external damages. More than half of the reductions in external damages are health benefits, highlighting the importance of accounting for co-pollution impacts of carbon pricing. Our fuel and emission specific tax elasticity estimates suggest much stronger demand responses to eco tax increases than to market price movements, primarily due to increases in tax salience, which we measure using textual analysis of newspapers. We further show that gasoline-to-diesel substitution substantially mediates the trade-off between climate and health benefits. Our results highlight the key roles of tax salience and fuel-substitution in mediating the effectiveness of fuel taxes to reduce climate and health externalities.
Subjects: 
Environmental policy
carbon tax
eco tax
tax elasticity
tax salience
fuel consumption
fuel substitution
externalities
climate
pollution
health
JEL: 
Q51
Q58
Q41
H23
Document Type: 
Working Paper

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