Dual Objectives in Taxation Policy - A Study of the Swedish Airline Tax and its Effects

Abstract: This thesis examines the recently implemented Swedish airline tax. It focuses on two areas surrounding the tax. The first being the dual objectives of increasing efficiency by internalizing the climate externality of aviation and reducing emissions to aid in the completion of Swedish climate goals. The second being the effect of the tax in relation to those objectives. Elasticity estimates for air travel demand are estimated using regression analysis, which are used along with other elasticity estimations to predict the consequence of the tax on demand and emission reduction. The results of the thesis show a clear drop in expected demand and emissions, indicating that the airline tax will be at least partly successful in its objective to reduce emissions. The tax will not be successful in internalizing the climate externality completely due to a low tax rate but will increase efficiency. The dual objectives are concluded to contain some intrinsic conflict since the goals of efficiency and emission reduction does not always coincide. Efficiency appears to have both practical and normative problems as an objective but choosing a target for emission reduction is difficult and prone to similar issues.