The Effect of Pollution Tax on Houshould's Demand for Environment Polluting Goods

One of the most important problems of human societies is greenhouse gas emissions which are increasing along with population and economic growths and development of countries. Environmental pollution damages people’s health and imposes costs on societies. Taxes are considered as pollution control and environmental protection tools which can influence people's incentives for the consumption of environment polluting goods and can control the pollution. The effect of tax pollution on households' demand for three environment polluting goods, including vehicles fuel, electricity and water commodity, was studied by estimating the Linear Expenditure System (LES). For this purpose, first the parameters of marginal propensity of expenses and households’ minimum income for living were obtained. Then, the linear expenditure system was estimated. Findings: The results from estimating the model show that i) the tax elasticity of demand for vehicles fuel, electricity and water are -0.364, -0.326 and -0.233, respectively, and pollution tax on fuel, electricity and water reduces the demand for these commodities and thereby reduces the environmental pollution; and ii) the effect of tax pollution on reducing vehicles fuel consumption is stronger than that of tax on reducing consumption of other goods. Discussion and Conclusion: The significant effect of tax on reducing pollution highlights the importance of using tax instruments for reducing pollution. This finding can be considered in the policy making system for future planning in the country.