Accounting for behavioral effects of increases in the carbon dioxide (CO2) tax in revenue estimation in Sweden

In this paper we describe how behavioral responses of carbon dioxide (CO2) tax increases are accounted for in tax revenue estimation in Sweden. The rationale for developing a method for this is a mix between that a CO2 tax is a primary climate policy tool aiming to reduce CO2 emissions and that the CO2 tax generates sizable tax revenues.

► We develop a method on the long run tax revenue effects of increasing the CO2 tax in Sweden. ► We use long run price elasticities as the basis for calculating the long run effects. ► The CO2 tax is the primary instrument to reduce CO2 emissions from sectors outside the EU ETS. ► There is almost an exact correlation between fossil energy use and fossil CO2 emissions. ► The method provide consistent estimates of emission reductions following from CO2 tax increases.