Optimal Energy Taxation in Cities

In a recent paper, Jan Brueckner , together with Rainald Borck, has examined environmental taxation in cities. Emissions externalities generated by residential heating and cooling as well as commuting can be addressed by three separate taxes, which together are equivalent to a carbon tax. In addition to a tax per mile of commuting, a tax per square foot of housing and a tax on land are required. When these taxes are imposed, numerical simulations show that the city becomes more compact and denser at the centre, with falling emissions. In addition to the first-best taxes, the researchers also analyse second-best outcomes where one or two of the three taxes is set at zero. An especially interesting case is where the two real estate taxes equal zero, with the commuting tax alone forced to address both residential and commuting emissions. Although the model is very detailed and realistically calibrated, it omits several elements. The first is traffic congestion, and the second is the omissions generated by the production of non-housing goods. Congestion is difficult to incorporate in the model, which is already numerically complex, but it could be added using a realistic approximation that makes commuting cost a nonlinear function of distance. Emissions generated by non-housing consumption would be easier to add, following the lead of work by other authors, and their presence would require a fourth tax: one on the composite non-housing commodity.

During his CES visit, Mr Brueckner will continue his research on environmental taxation in cities. He is also looking forward to interaction with CES staff and visitors, especially in his main areas of interest: Urban Economics, Public Economics, Industrial Organisation, Airline Economics and Real Estate Finance. He will also hold three CES Lectures on "The Economics of Urban Sprawl".

Jan Brueckner is Professor of Economics at the University of California, Irvine. He was previously Professor of Economics at the University of Illinois at Urbana-Champaign. He holds an AB in Economics with Distinction from the University of California, Berkeley and a PhD in Economics from Stanford University. From 1991 to 2007 he was Editor of the Journal of Urban Economics. Mr Brueckner is a Fellow of the CESifo Research Network.