Redistributing the energy tax burden in the Philippines

This paper uses an aggregate modelling approach to assess the impacts of a redistribution of the taxes and duties that currently exist on crude oil and refined petroleum products on the Philippine economy. The approach used in the analysis consists of a general equilibrium model composed of fourteen producing sectors, fifteen consuming sectors, three household categories classified by income and a government. The effects of replacing the taxes and duties on crude oil and refined petroleum products with a more broad based tax on manufacturing and service sectors output on prices and quantities are examined. The results are revealing. For example, the consequences of redistributing the tax burden away from petroleum products to the manufacturing and service sectors of the Philippine economy will be an increase in output by all producing sectors of about 3.5 percent or about 2.4 hundred billion Philippine pesos, a rise in the consumption of goods and services by about 6.1 percent or 1.6 hundred billion Philippine pesos, a rise in total utility by 6.9 or 1.9 hundred billion Philippine pesos, and virtually no change in tax revenue for the government. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities. That is, while the model's equilibrium values do vary in response to different assumptions of the values of these elasticities, the fluctuations are not so enormous to suggest that the model is unrealistically sensitive to these parameters.Notation Y_j Total production in sectorj (j=1, 2, ..., 14) - CD_j Consumer demand for productj - GE_j Government endowment of productj - UM_j Imports of productj - _LRAS_jl RAS balanced input-output intermediate demands - GD_j Government demand for productj - INV_j Investment in sectorj - UX_j Exports of productj - SL_c Supply of labor by householdc (c=1, 2, 3) - SK_c Supply of capital by householdc - SD_c Supply of land by householdc - DL_j Demand for labor in the industryj - DK_j Demand for capital in the industryj - DD_j Demand for land in industryj - GDL Government demand for labor - GDD Government demand for land - TL_j Tax on labor in industryj - TK_j Tax on capital in industryj - TD_j Tax on land in industryj - GCE_i Consumer demand for consumer producti (i=1, 2, ..., 15) - Z_ji A 14×15 transformation matrix - RCS_ic RAS balanced matrix of each household's demand for each consumer good - TC_j Excise tax on consumer goodj - TRN_c Transfer payment to householdc - PIT_c Personal income tax payment for householdc - TAU_c Marginal income tax rate for householdc - SAV_c Savings in householdc - GC_c Gross consumption of householdc - ZTA Consumption plus leisure coefficient - TE Total government endowments - EM_j Demand elasticity of export demand - FE_j Endowment/demand sector of adjusted elasticity of export demand - GSK_j Government endowment of capital in industryj - GDK_j Government demand for capital in industryj - GTL Government wage taxes on its own employees - TXO_j Government output tax on industryj - TC_c Consumption taxes on householdc - CG_c Total government consumption by householdc - SAV_c Total savings by householdc - INV_j Total investment by industryjThe views expressed are those of the authors and do not necessarily represent the policies of the organizations with which they are affiliated. They would like to thank Wildrido Cruz of the World Bank and Climenta Habido of the Philippine government for help in acquiring the requisite data to calibrate the model used in the analysis. They would also like to thank an anonymous referee for helpful suggestions.