Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/179444 
Year of Publication: 
2017
Series/Report no.: 
Economics Working Paper Series No. 17/282
Publisher: 
ETH Zurich, CER-ETH - Center of Economic Research, Zurich
Abstract: 
The behavioral responses to taxes and subsidies are often subject to various behavioral biases and transaction costs - what we define as "microfrictions". We develop a theoretical framework to show how these microfrictions - and their heterogeneity across the population and policy instruments - affect the design of Pigouvian policies. Standard Pigouvian pricing still holds with transaction costs, but requires adjustment with behavioral biases. We use transaction-level data from the US appliance market to estimate the heterogeneous behavioral responses to an array of energy fiscal policies and to quantify microfrictions. We then assess optimal fiscal policies and find that it is rarely optimal to couple a Pigouvian tax on energy with an investment subsidy in this context. We also find that energy labels - intended to increase the salience of energy information - can interact in perverse ways with both taxes and subsidies.
Subjects: 
energy fiscal policies
behavioral taxation
demand estimation
durables
JEL: 
Q4
Q48
Q58
H31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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