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The Distributive Effects of the Federal Energy Tax Act

Dubin, Jeffrey A. and Henson, Steven E. (1988) The Distributive Effects of the Federal Energy Tax Act. Social Science Working Paper, 674. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper examines the distributional consequences of the tax credits implemented by the Federal Energy Tax Act of 1978. The distributional effects are of interest both for their own sake, and because they have implications for the cost-effectiveness of the credits. If rates of return to conservation are higher for individuals who consume less housing, as earlier evidence suggests, then conservation incentive programs can achieve larger benefits for a given cost if they are distributionally more progressive. We explain the amount of credit claimed by taxpayers using a tobit model, in which credits claimed are a function of variables that affect the net benefit of weatherization. We estimate the model using data from the 1979 Taxpayer Compliance Measurement Program conducted by the Internal Revenue Service. We find that credits claimed are significantly higher where winters are more severe, where energy prices are high or rising rapidly, and where individuals have higher incomes and spend more on housing. Progressivity indices based on Lorenz-Gini measures of inequality reveal that the tax credits were somewhat regressive, even holding climate and energy prices constant. This suggests that the credits may have been ineffectively targeted. In addition, we find no evidence that the credits had a measurable incentive effect, suggesting that they have largely provided windfall gains to households who would have insulated anyway.

Item Type:Report or Paper (Working Paper)
Additional Information:We would like to thank Bill Lefbom for help in acquiring the data. The helpful comments of Louis Wilde, David Hedrick, and the editor are gratefully acknowledged. Financial assistance was provided by the Exxon Foundation through the California Institute of Technology Environmental Quality Laboratory. Sandie Ellis provided valuable research assistance. All remaining errors are our own.
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:674
Record Number:CaltechAUTHORS:20170906-143432906
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81205
Deposited By: Jacquelyn Bussone
Deposited On:06 Sep 2017 21:51
Last Modified:03 Oct 2019 18:40

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