Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271876 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10232
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Environmental policies are often accompanied by exemptions for energy-intensive and trade-exposed industrial firms to avoid leakage from regulated to unregulated jurisdictions. This paper investigates the impact of a large electricity tax exemption on production levels, employment, and input choices in the German manufacturing industry. For two different policy designs, we show that exempted plants significantly increase their electricity use. This effect is considerably larger under a notched exemption policy, where passing an eligibility threshold yields infra-marginal benefits, compared to a revised policy where these benefits have been largely removed. We de-tect no significant impact of the exemptions on production levels, export shares, and employment. Using counterfactual simulations, we document substantial distortive effects of notched exemption policies when financial stakes are high and compliance cost for firms are low.
Subjects: 
environmental policy
leakage
energy taxes
manufacturing industry
JEL: 
D22
H23
L60
Q41
Document Type: 
Working Paper
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