Could Tax Incidence Help Explain the Yellow Vest Movement? Evidence from France on tax incidence and heterogeneous effects of carbon and fuel taxation along the rural-urban spectrum

Sammanfattning: There is a general consensus amongst economists that taxing carbon emissions is an efficient policy tool for combating climate change. To fully understand the thorny issues surrounding the political economy and distributional effects of carbon taxation, more attention should be paid to the rural-urban dimension. Using fuel station-level data from close to all stations in France and Germany, this study investigates the tax incidence of the diesel tax changes in France in the time period from 2014 to 2018. In particular, it examines whether there is heterogeneity along the rural-urban spectrum in how the tax increases are passed on to consumers. Employing a novel difference-in-differences strategy allows us to relax the assumption of exactly parallel trends to construct robust confidence intervals. We do not find evidence for the diesel tax increases in France being passed on to consumers at different rates depending on whether they live in urban or rural areas. However, there is consistent evidence for the tax leading to increases in the price of diesel by more than the full amount of the tax increase. These findings contribute to the literature which investigates whether the extent to which fuel taxes are passed on to consumers varies depending on location. The empirical approach also highlights the importance of making reasonable assumptions about the extent to which the parallel trends assumption holds when using difference-in-differences models.