Redistribution Through Public Utility Pricing in the Presence of Nonlinear Income Taxation and Energy Efficiency Considerations

Feger, Fabian Stefan; Radulescu, Doina Maria (August 2018). Redistribution Through Public Utility Pricing in the Presence of Nonlinear Income Taxation and Energy Efficiency Considerations (CESifo Working paper 7195). München: CESifo München

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Many OECD countries such as the USA, the UK or Switzerland are concerned with the affordability of utility services and the distributional consequences inherent in the pricing of basic goods and services, such as electricity. In spite of that, residential energy prices include a combination of taxes, levies, and infrastructure charges. These mark-ups exacerbate potential affordability issues, as expenditures on energy consumption make up a considerable proportion of low income households' total expenditures. In this paper we structurally estimate a model that combines public utility pricing and income taxation to explain the deviation from marginal cost pricing commonly observed in residential electricity markets. We employ a large panel data set on about 105,000 households in the Swiss Canton of Bern from 2008 to 2013, including detailed energy consumption and household income and tax payment characteristics. The calibrated model shows that if, conditional on income, households' taste for electricity consumption differs, and the social planner is solely interested in income redistribution, the electricity price should be subsidized. However, once energy efficiency concerns also prevail, optimal mark-ups increase. The positive mark-up of 49% in our data implies that, in practice, the government equally values energy efficiency and equity.

Item Type:

Working Paper

Division/Institute:

11 Centers of Competence > KPM Center for Public Management

UniBE Contributor:

Feger, Fabian Stefan and Radulescu, Doina Maria

Subjects:

300 Social sciences, sociology & anthropology > 350 Public administration & military science
300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

2364-1428

Series:

CESifo Working paper

Publisher:

CESifo München

Funders:

[42] Schweizerischer Nationalfonds

Language:

English

Submitter:

Doina Maria Radulescu

Date Deposited:

13 Feb 2019 14:20

Last Modified:

13 Mar 2021 23:47

Uncontrolled Keywords:

Income redistribution; public utility pricing; energy efficiency; asymmetric information

JEL Classification:

D12, D31, H21, H23, H24, L94, L98

BORIS DOI:

10.7892/boris.125097

URI:

https://boris.unibe.ch/id/eprint/125097

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