Park Seung-Joon 4. Nov. 2010 GCET 2010, Bangkok, Thailand

1. On the Difference of Effect on Energy Consumption between Energy Tax and Pre-Tax Energy Price: An International Panel-Data Analysis on Gasoline Demand Park Seung-Joon 4. Nov. 2010GCET 2010, Bangkok, Thailand

2. Question • The meaning of Environmental Tax Reform to address several environmental problems. • The Effect of Eco-Tax is related to Price Elasticity of Demand • Question: The Effect of Price Change and Tax Hike is the same??

3. Volatile Oil Price （WTI Forward $/bbl） Source: http://chartpark.com/wti.html (Accessed on 2010.7.25)

4. Price Hike by... • Market Development“High price may be temporal, it may go down soon suddenly.” • Tax Hike (raising tax rate)“Tax rate, once raised, cannot easily be reduced.”So, energy consumers may react stronger, by changing behaviour, or buying efficient car or appliances. • How to Prove this presumption??

5. Existing Study • Ghalwash (2007) “Signaling Effect of Tax”Based on Household Expenditure Data and using Almost Ideal Demand System Model, revealed that Tax Elasticity is larger than Price Elasticity. • Bardazzi, Oropollo and Pazienza (2009) Panel-Data Analysis of 5600 Italian Companies, revealed that Tax Elasticity is larger than Price Elasticity. • But, what is “Tax Elasticity”?

6. Specification in Ghalwash(2007) (Difficulty of Log-Linear) Normal way to calculate price elasticity(β2)(hard to separate and t) Ghalwash defined the after-tax price (p) as the product of pre-tax price ( ) and tax factor (τ), and log-linearized. (That is,　　　　　　　　　） Then, we can separate the effects β2 and β3

7. But this method makes difficulty • (1) Market Price Development changes Tax Factor • Say, initial pre-tax price is 100[cent/litre], excise duty is 50 [cent/litre]. If pre-tax price goes up to 200[cent/litre], tax factor τ goes down to 1.25 from initial 1.5. (Automatic Tax Cut??) • (2) A Tax-Hike together with the same range of Price Increase keeps the Tax Factor unchanged. • Say, initial pre-tax price is 50 [cent/litre], and specific duty rate is also 50 [cent/litre]. If both of price and tax are raised by 10 [cent/litre], tax factor remains unchanged. (Although tax has been raised!) 100 50 200 50 τ=1.5 τ=1.25 50 50 60 60 τ=2 τ=2

8. An Additional Specification Simple Linear (not for elasticity) • Simple Linear We can find “difference” by this method.But, how to prove the Significance? Method to show the significance of difference between β2 and β3 pre-tax price Excise Tax rate Gap: Significant??

9. Method and Data for Analysis • Statistical Software STATA • Panel Data Analysis on Gasoline in 29 OECD countries. • IEA: Energy Prices & Taxes - Quarterly StatisticsIEA: Energy Balances of OECD Countries Linear gaspcit: Per Capita Gasoline Consumption [kg/pers.]gdppcit: Per Capita Real GDP [1000$ppp/pers]prit: Real Pre-Tax Gasoline Price [$ppp/Litre]trit： Real Excise Tax Rate on Gasoline [$ppp/L] μit： Error TermSuffix “i” stands for country, “t” for year.Deflator is U. S. CPI, base year 2000.The VAT on pre-tax price is included in pre-tax price, and the VAT on excise tax rate is included in the excise tax rate. vat 1 pre-taxprice excise tax rate

10. Linear and Log-Linear Linear Tax Rate Log-Linear Tax Factor

11. [1]GDP and Gasoline Consumption(Per Capita)

12. [2]After-Tax Price [$/litre] and Per Capita Gasoline Consumption

13. [3]Tax Rate [$/litre] and Per Capita Gasoline Consumption

14. Panel Data Analysis • Test of Endogeneity (Kitamura 2007) Log-Linear Specification (Fixed Effect) significant (P=0.020) (Random Effect) significant (P=0.060) Hausman Statistics: -245.53 Linear Specification (Fixed Effect) not significant (P=0.146) (Random Effect) not significant (P=0.160) Hausman Statistics: -6.99

15. Table 3 Estimated Results of log-linear specification Eq.(7) Note: p-Value of t-test is in parentheses; level of significance, *** 1%, ** 5%, * 10%.Breusch-Pagan test revealed significance at 1% level, implying fixed effect panel is better than pooled OLS.

16. Table 3 Estimated Results of log-linear specification Eq.(7) Note: p-Value of t-test is in parentheses; level of significance, *** 1%, ** 5%, * 10%.Breusch-Pagan test revealed significance at 1% level, implying fixed effect panel is better than pooled OLS.

17. Results • The effect of Tax Rate is stronger than of Price(Always significant by Log-Linear Sp.) • By Log-Linear, the difference is +16.0%, andSignificant (p=0.000)β3= -0.7811, β2= -0.6734; FE of IV Model(In Line with Older Studies) • By Linear, the difference is +27%, but barely Insignificant (p=0.107)β3= -1.201, β2= -0.948; RE of IV Model

18. Literature Bardazzi, R, F. Oropallo and M. G. Pazienza (2009) “Industrial CO2 emissions in Italy: a microsimulation analysis of Environmental Taxes on Firm’s Energy Demand” Critical Issues in Environmental Taxation IV Ghalwash, T. (2007) “Energy Taxes as a Signaling Device: An Empirical Analysis of Consumer Preferences” Energy Policy, Vol. 35, Issue 1, p. 29-38 Schreiber, S. (2008) The Hausman Test Statistics can be Negative even Asymptotically, Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2008, vol. 228, issue 4, pages 394-405 Kitamura (2007) 北村行伸『パネルデータ分析』岩波書店 Tsutsui et al. (2008) 筒井淳也・平井裕久・秋吉美都・水落正明・坂本和靖・福田亘孝(2007)『Stataで計量経済学入門』ミネルヴァ書房

19. Panel Data Analysis • Test of Endogeneity (Kitamura 2007) There is a doubt that prit+tritis endogenous (market price detre) そこで、操作変数として、実質輸入原油費用pcorit[米$/bbl]を用いる。 を推定し、残差 を計算する。式(7)に、 を説明変数として含めることによって、 の係数(β4)が有意であれば、内生性があると見なされる。 検定の結果、内生性は無いと判定されたが、β4のp値は16%程度で、高くない（内生性が無いことを断定し難い）。そのため、操作変数法も用いて結果を比較する。