Indirect taxes on transportation activities that pollute can correct externalities and close the gaps between private and social costs. However, policy makers often find such Pigou taxes difficult to implement because of political resistance due to possibly adverse affects on equity. For this reason it is important to assess the distributional aspects of environmental levies. This article estimates properties of the demand for transportation in parametric and non-parametric analyses of Consumer Expenditure Surveys for the United States, 2000, and finds patterns in the resulting set of Engel curves. Private transportation using air flights and new automobiles have Engel elasticities above unity while public transportation via mass transit has Engel elasticity below unity. The findings can be interpreted in an important way since they show that a differentiated scheme of environmental taxes on transportation may function progressively. A Pigou scheme with larger taxes on modes of transportation that pollute more appears to coincide with larger levies on luxury modes preferred by richer households.

A system of consumer expenditure functions is estimated from Norwegian household budget data. Specific features o f our approach are: (i) Panel data on individual households are used, which offer far richer o p p o r t u n i t i e s f o r i d e n t i f i c a t i o n , e s t i m a t i o n a n d t e s t i n g t h a n u s u a l c r o s s s e c t i o n data. (ii) Measurement errors are carefully modelled. Total consumption expenditure is modelled as a latent variable, purchase expenditures on different goods and two income measures are used as indicators of this basic latent variable. (iii) The distribution of latent total expenditure across households, and its evolution over time, is estimated and important properties tested. (iv) Individual differences in preferences, represented by individual, time invariant latent variables, are modelled, identified, estimated, and tested. (v) We test the hypothesis that preferences are uncorrelated with total consumption expenditure, which is basic to all cross section estimation of consumer demand functions. (vi) The model can be formalized as a special case of the LISREL model, and the maximum likelihood algorithm of the computer program LISREL VI is applied. 1 Paper presented at the Econometric Society European Meeting, Bologna, August 29-September 2, 1988. This research has been financed in part by NORAS (project no. 214 1 802). Liv Daasvatn has given valuable programming assistance in the preparation of the data.

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The welfare effects of introducing taxes on emissions of carbon dioxide is analysed within an empirical general equilibrium model of the Norwegian economy. A CO 2 tax regime where we aim at stabilising the CO, emissions at the 1990 emission level in 2020 is compared to a reference scenario without such taxes. In the simulations introduction of CO 2 taxes reduces gross domestic product, but increases net national real disposable income, private consumption and money metric utility. This difference in sign is due to a positive terms of trade effect, some of the CO2 taxes will be paid by foreigners through exports. The welfare effects differ from household to household depending on the composition of their total consumption. Poor households are less favourably affected than rich households, due to smaller budget shares for the rich households on consumer goods which imply relatively much CO 2 emissions.

This article discusses revenue estimating procedures for changes to the personal income tax. Using partial equilibrium revenue estimates of the personal income tax cuts introduced in Norway in 2006 as an example, we fi nd wide variation in the estimates of the revenue costs of cuts depending on various factors, even in the short term. Our revenue estimates take into account labor supply responses and changes in revenues from payroll taxes and indirect taxes, and we compare our results to those obtained using current static revenue estimating procedures. In general, we fi nd that more than 60 percent of the static revenue cost of personal income tax cuts is offset with higher tax revenues from other tax bases and higher personal income taxes due to increases in labor supply.