Environmental taxes encourage lower consumption

09/10/2014 Umeå University

Tobacco taxation and environmental taxes on electricity and gasoline is the most effective way for politicians to get consumers to understand the problems of smoking and pollution. Expenditure on media campaigns from government and industry, and lobbying by the industry, most effectively influences consumers' consumption of tobacco and gasoline in the United States. Erik Brockwell will be defending his dissertation at Umeå University on Friday, October 10.

In the USA, tobacco and environmental taxation on electricity and petroleum, is an important component in explaining problems with consumption. A tax increase which results in decreased consumption and makes consumers more aware of the impact on personal health and the environment is known as the signaling effect of taxation.

From analysis of US data, there is a large signaling effect seen for tobacco, electricity, and petroleum taxation. This means that consumers are consumers are buying less of these goods and at a greater rate than consumption changes from producer prices.
- An unexpected result is, for petroleum, consumers appear to be more willing to change their consumption patterns in response to a tax increase than previously thought. American politicians avoid, especially these days, to increase the price of petroleum because it is perceived as a hot potato issue where politicians do not want to risk voters’ discontent, says Erik Brockwell.

Tobacco and petroleum advertising and lobbying is an issue that often ends up as a “blind spot”, says Erik Brockwell, who also investigates the effect of the state’s effort to reduce consumption and the industry’s attempt to increase consumption of cigarettes and petroleum in the United States.
- A fascinating result is that, for tobacco, consumers appear resistant to industry media advertising from the tobacco industry in the United States where consumers consume less. Lobbying, on the other hand, where the industry informs politicians about why, for example, not to legislate or tax the tobacco industry hard, makes you consume more.

For petroleum, the results show that producer prices and state media expenditure campaigns on television, radio, magazines, and newspapers, effectively help to cut down the consumption on petroleum. As with the tobacco industry, lobbying by the petroleum industry effectively increases petroleum consumption.

- A strong policy recommendation here is that the US should focus more spending on state media expenditures and information campaigns, says Erik Brockwell.

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