Combining input‐output analysis and micro‐simulation to assess the effects of carbon taxation on Spanish households

Abstract

Abstract This paper explores the effects of a tax levied on Spanish energy‐related CO2 emissions. After justifying the relevance of carbon taxation in the Spanish context, we consider the introduction of a product (fossil‐fuel) tax with a rate obtained through the ‘actual damage cost’ method. Our empirical analysis proceeds in two stages. First, we employ an input‐output demand model to calculate the price changes after the introduction of carbon taxation. In a second stage, simulation with Spanish household micro‐data for 1994 yields the environmental and economic effects of a Spanish carbon tax. We find a limited short‐run reaction to the carbon tax, which hampers its environmental success. The carbon tax burden is, however, significant, with a proportional distribution across households.